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Australian Dollar Hit By Weak Building Permits, Gains On China PMI

Australian Dollar Hit By Weak Building Permits, Gains On China PMI

David Cottle, Analyst

Talking Points:

  • AUD/USD has faced a busy data morning
  • Australia’s manufacturing sector seems in rude health, its construction sector much less so
  • China’s private manufacturing held steady in January

Find out how the Australian Dollar’s fortunes look to retail foreign-exchange investors right now at the DailyFX Sentiment Page.

The Australian Dollar fell a little and then bounced Thursday on a mixed bag of domestic and Chinese economic data.

The January Caixin Purchasing Managers Index survey of private sector Chinese manufacturers came in at 51.5. This was exactly as expected and the same as December’s reading. Still there may yet have been some relief for investors in the figure given that the official PMI released on Wednesday came in at a slower than expected 51.3. In the logic of PMIs any reading above 50 signifies a monthly expansion for the sector in question. Caixin reported robust current performance but said that there were some clouds over future demand levels.

Australia’s domestic data had something for both bulls and bears. December’s building permit approvals slumped by 20% on the month and 5.5% on the year when a respective fall of 7.6% and a rise of 11.5% had been expected. This is a most volatile series and the holiday period may have accounted for much of the weakness seen. But all the same it’s clear that the Australian construction industry didn’t start 2018 on a very strong footing.

Manufacturing did a lot better, however with the Australian Industry Group’s January index coming in at 58.7 This is exactly like a PMI. There were also marked improvements in the sub-indexes which contribute to the headline figure, from new-order levels to employment.

The Australian Dollar market remains focused on the ‘USD’ side of AUD/USD at the moment, but the currency slipped on building permits’ weakness only to revive somewhat into the China PMI data. The Australian Dollar can act as a liquid proxy for Chinese economic performance given Australia’s famed raw material exports to the world’s second-largest economy.

Australian Dollar Hit By Weak Building Permits, Gains On China PMI

More broadly the Aussie has been a notable beneficiary of recent months’ general US Dollar weakness. AUD/USD’s impressive daily-chart climb up from the lows of mid-December saw it take out the highs of 2017 and forge on to peaks not seen since 2015. The rise probably hasn’t been solely down to the greenback’s enfeeblement however. Much Australian economic data has come in strongly, although inflation remains a notable weak spot as it does across many developed countries.

Australian Dollar Hit By Weak Building Permits, Gains On China PMI

AUD/USD has unsurprisingly now strayed into heavily overbought territory and seems likely to consolidate around current levels ahead of next Tuesday’s Reserve Bank of Australia monetary policy decision. This is thought highly unlikely to herald any change to the country’s record-low 1.50% Official Cash Rate but the RBA has been notably quiet so far this young year, and any light thrown on its current thinking will be most welcome.

--- 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.