Australian Dollar Slide Halts As China PMI Holds Above 50 But Misses Forecast
Australian Dollar, Official China Purchasing Managers Index Talking Points:
- The Australian Dollar’s slide was arrested by Chinese PMI data
- Overall they were a strong set, even though manufacturing expansion came up short
- The service sector has revived impressively from lockdown
The Australian Dollar’s Thursday slide was slowed by news that China’s economy continues to recover well from the ravages of coronavirus, even if not quite as well as expected on all counts.
The official April Purchasing Managers Index for the manufacturing sectors came in at 50.8, which was below both the 52.0 seen in March and the 51.0 expected. However, it was above the important 50 point and that seems to have been enough for the market.
In the logic of PMI data, it takes a reading above 50 to signify expansion. The manufacturing series hit a low of 35.7 in February, as coronavirus shuttered the economy, but has bounced back into expansion territory with astonishing speed.
The non-manufacturing print was strong too, coming in at 53.2, above expectations of 52.5. The two together gave a composite reading of 53.4, above the 53.0 seen in March.
Risk appetite was already under a bit of pressure Thursday thanks to reported comments from Donald Trump, in which he said he can ‘do a lot’ in terms of imposing consequences on China over the viral outbreak.
The Australian Dollar can act as the foreign exchange market’s favoured liquid proxy bet on China’s performance thanks to the strong raw material trade links between the two countries, with Chinese demand fuelling Australia’s mining and energy expansion.
It seems to have done so to a limited extent after this data, finding a foothold after slipping earlier in the session.
More broadly the Aussie has recovered markedly from its own March lows. Along with other growth-correlated assets it found comfort in the various programs put in place around the world to bolster credit markets in the face of the threat from coronavirus. Now it’s catching a further bid as many countries tiptoe out of their contagion-inspired lockdowns.
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--- Written by David Cottle, DailyFX Research
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