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Australian Dollar Stays Firm After China Mfg PMI Beat

Australian Dollar Stays Firm After China Mfg PMI Beat

David Cottle, Analyst

Talking Points:

  • China’s manufacturing PMI beat expectations in June
  • That said the indicator has remained stubbornly around the 51 handle for months
  • The Australian Dollar was rising before the data and stayed up

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An already stronger Australian Dollar rose a bit further Friday after a strong snapshot of China’s manufacturing sector.

The official June Purchasing Managers Index came in at 51.7, above both the 51.0 expected and May’s 51.2

In the logic of PMIs any reading above 50 signifies expansion for the sector in question. The June reading continues the trend of measurable if perhaps not stellar expansion which has been in place for much of the past twelve months. The PMI has been at 51-and-change for nine months straight, topping out at 51.8 in March and chalking up three months at the low, 51.2.

The manufacturing PMI tends to be more closely watched by markets, but the non-manufacturing version released at the same time also moved ahead. It came in at 54.9, above the previous month’s 54.5.

The overall picture is of a Chinese economy expanding reasonably strongly, although investors have increasing concerns about the levels of financial leverage which are coming with this growth now. Non-financial sector debt reportedly stands at multiples of China’s GDP.

The Australian Dollar can act as the financial markets’ favourite liquid China proxy and may have done so to an extent after the data. AUD/USD certainly continued to rise. However, it is probably more likely that the overall US Dollar weakness engendered by more hawkish rhetoric from other developed-market central bankers this week is supporting the Aussie. The Reserve Bank of Australia meets to set monetary policy next week and investors seem prepared to bet that it too will make noises about the end of ultra-low interest rates.

Australian Dollar Stays Firm After China Mfg PMI Beat

--- Written by David Cottle, DailyFX Research

Contact and follow David on Twitter:@DavidCottleFX

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

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