Australian Dollar, China Caixin PMI Talking Points:
- The Australian Dollar made strong gains on the back of the China, US trade agreement
- Those gains have held despite some quite lackluster local data
- China’s manufacturing sector could certainly do with the lifting of tariff
Fourth-quarter technical and fundamental forecasts from the DailyFX analysts here.
Australian Dollar trade remained focus on the trade thaw negotiated between China and the US at last weekend’s Group of 20 meeting in Argentina, despite a plethora of local data released Monday.
China’s final Caixin Purchasing Managers Index came in at 50.2 for November, very slightly better than the 50.1 previously reported. In the logic of PMI numbers, it takes a reading above 50 to signify expansion for the sector in question.
These figures follow last week’s official data for the same month, which showed notable weakness in the manufacturing sector. That PMI came in right on the 50.0 line, for its weakest showing since early 2016. The official data focus on large concerns, which often have heavy State involvement. The Caixin version meanwhile drills down into the doings of smaller, private firms.
There will be some hope now that whatever dampening effect US tariffs may have had on Chinese factory output can be banished. However, until there is an actual trade deal, hope it will remain.
The Australian Dollar has had a volatile start to the week. It was boosted initially to new three-month highs as news of a trade ceasefire between China and the US at the weekend’s G20 meet in Argentina crossed the wires. A lasting peace between the two global titans is of perhaps special importance to Australia, given its huge export links with one and its security ties with the other. A revival of global growth hopes should a trade deal be struck would also support the growth-linked Australian currency.
Domestic data released since were lackluster. Company profits and inventory levels both missed expectations in October while building approvals 1.5% fall was better than the 2% slide markets had feared.
On its broader, daily chart, AUD/USD remains in the well-respected uptrend channel which has been in place since late October when the Aussie at last broke out of the malaise which had dogged it all year. Signs of a more co-operative trade relationship between China and the US may very well boost the Australian Dollar further. It has after all strong trading and political links with both the main players.
However, signs that the current trade thaw could become a trade deal may very well be taken in the markets as an indication that US interest rate rises will continue well into 2019. With no increase expected in Australia’s record-low rates through all of next year, the Australian Dollar could once again start to fade.
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--- Written by David Cottle, DailyFX Research
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