Talking Points:
- China’s manufacturing sector expanded yet again in August
- It’s now into 13 straight months of gentle gains
- Aussie bulls liked the numbers but probably have their eyes set closer to home now
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The Australian Dollar got a modest fillip Thursday from news that China’s manufacturing economy did better than expected this month.
The official Purchasing Managers Index for August came in at 51.7, above both the 51.3 expected and July’s 51.4. August was the highest point for the index since March. In the logic of PMI releases any reading above 50 signifies an expansion. On this basis China’s manufacturing economy has been expanding now for 13 straight months, with the expansion seemingly quite solid and sustainable.
The Australian Dollar can often act as the foreign exchange markets’ favourite liquid China proxy, given Australia’s close export links with the world’s second largest economy. It seemed to do so in this case, rising a little after the data. However, the market’s focus is probably closer to home with a week of important Australian economic news looming.
The Australian Dollar has had a torpid few weeks. AUD/USD has retreated from this year’s highs, but overall not by very much. The Reserve Bank of Australia has repeatedly warned markets that it is not keen on further strength in the currency, and its watchfulness may account for the lack of action.
However, with a monetary policy decision and official second-quarter growth data coming up in the week ahead, it seems likely that the pair will see at least a bit more volatility even if the overall backdrop doesn’t change much.
The Australian Dollar is essentially stuck between the RBA and interest rates which still look attractive to international investors even at their 1.50% record lows.
--- Written by David Cottle, DailyFX Research
Contact and follow David on Twitter: @DavidCottleFX
