Talking Points:
- China’s June Caixin PMI for the manufacturing sector just missed expectations
- Taken with official data it suggested that trade spats are constraining activity
- Still, the Australian Dollar didn’t move much
Find out what the retail foreign exchange community makes of the Australian Dollar’s chances right now at the DailyFX Sentiment Page
The Australian Dollar was steady on Monday despite a very slight disappointment from the Chinese manufacturing sector.
The June Purchasing Managers Index from Caixin came in at 51.0, just below the forecast 51.1, which was also May’s print.
In the logic of PMI releases, any reading above 50 signifies expansion for the sector in question. The Caixin survey follows the official PMI already released and concentrates on smaller, private concerns rather than the large State-involved enterprises of the official report.
The latter came out last weekend. It showed factory output growth slowing, possibly thanks to rising trade tensions. Still, the headline PMI cane in at 51.5, below May’s 51.9. Moreover, the ‘new orders’ sub-index registered contraction for the first time since February. The service sector continued to show robust expansion with a PMI of 55.0.
The Australian Dollar can act as the foreign exchange markets’ favorite liquid China proxy thanks to its home nation’s famed raw-material export links with China.
However, the Reserve Bank of Australia will set monetary policy on Tuesday and, with no change expected to the record-low, 1.50% Official Cash Rate, Aussie Dollar investors will probably want to see the RBA’s statement before committing themselves anew. The Caixin PMI was probably not enough of a surprise to shake their watching brief.
Given stubbornly low inflation, it is hard to see how the central bank can be anything other than keen to point out that rates are going nowhere soon.
On its broader daily chart, AUD/USD remains stuck in the long downtrend, which has dominated trade for much of this year.
The pair does seem to have found something of a base around recent lows and, if that base can hold in the face of RBA dovishness this week, then a spell of range trading could be in the offing. Trade in that case seems likely to be stuck between those lows and the peaks of late June, but it is still hard to see a convincing, longer-term Australian Dollar revival while interest rate differentials are running so clearly in the greenback’s favor.
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--- Written by David Cottle, DailyFX Research
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