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Australian Dollar Perks Up On Bouyant Caixin China PMI

Australian Dollar Perks Up On Bouyant Caixin China PMI

David Cottle, Analyst

Talking Points

  • The Aussie Dollar rose after China’s Caixin PMI whacked forecasts
  • It came after a modest disappointment in the official number
  • China’s manufacturing sector heads into 2017 in reasonable form

The Australian Dollar posted gains on Tuesday after a key snapshot of Chinese manufacturing performance came in well above forecasts.

December’s Caixin Purchasing Managers Index rose to 51.9, handily topping market expectations and November’s figure, both of which were 50.9. In the logic of PMIs any reading above 50 indicates an expansion in activity. This index has been gaining steadily thanks to construction and lending booms, which have seen it rise for six months straight. Output rose at a pace not seen since January 2013, with new orders up significantly. The only dark spot was in employment, with firms still cutting staff levels.

These latest data came after the official manufacturing PMI for December disappointed last Saturday, if not by much. That series measures output at the huge, state-owned manufacturers and came in at 51.4. That was just below the 51.7 level that markets had been looking for.

By contrast, the Caixin version looks at the smaller, private or semi-private enterprises. Taken together with the most recent service sector surveys, it seems that China’s economy enters 2017 on a reasonable footing. However, there are still plenty of clouds. Doubts hover over global demand. Then, there’s the Yuan’s persistent weakness against the US Dollar and a US President-elect much more openly critical of China than his predecessor in the Oval Office.

The Australian Dollar often acts as the markets’ favoured liquid proxy bet on China, which is hardly surprising given its home country’s vast raw material exports to the world’s second-largest economy. It certainly seemed to be doing so on Tuesday. AUD/USD rose to 0.72145 after the PMI release, from 0.72029 just before it. However, it is likely that thin markets have magnified this move. Many desks will remain thinly staffed until after this weekend and Japanese markets are closed for a holiday.

China Proxy: AUD/USD climbs

Australian Dollar Perks Up On Bouyant Caixin China PMI

Chart compiled using TradingView

Out with the old forecasts, in with the new. Check out DailyFX analysts’ first-quarter calls here.

--- Written by David Cottle, DailyFX Research

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.