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Australian Dollar Looks Past China Non-Manufacturing PMI Slump. Will AUD/USD Rise?

Australian Dollar Looks Past China Non-Manufacturing PMI Slump. Will AUD/USD Rise?

Daniel McCarthy, Strategist

Australian Dollar, AUD/USD, China PMI, PBOC – Talking Points

  • The Australian Dollar took the China PMI data in its stride
  • Weaker non-manufacturing PMI offset by in-line manufacturing print
  • Outlook for China dependent on Delta Covid variant. What does this mean for AUD/USD?
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The Australian Dollar reaction to the Chinese non-manufacturing Purchasing Managers Index (PMI) was subdued despite the disappointing print. However, the manufacturing PMI came in close to forecasts at 50.1 against an expected 50.2. The market tends to put more weight on the latter number.

It would seem that the Delta Covid variant impacted the outlook for survey participants as it continued to threaten growth prospects. Several seaports had been closed in the last month and flight data showed travel at its lowest point since the Delta variant emerged.

The PMI numbers come on the back of weaker Chinese data from a fortnight ago that saw retail sales (8.5% YoY) and industrial production (6.4% YoY) fall below expectations. The PBOC announced further stimulus measures after that data was released. Markets will be watching for any more stimulus measures.

Coming up in the next fortnight is Chinese trade data, inflation numbers and money supply. Markets will be focused on M2 to see what the impacts of the announced liquidity injections have been.

Looking ahead, the Delta variant may continue to dampen trade prospects for many Chinese exports. This will likely be of concern for the Australian Dollar and iron ore prices. While several Chinese ports have re-opened, the risks of future closures are a threat to Australia’s largest export market. Iron ore prices stabilized as Chine re-opened shipping routes, but AUD/USD remains in a downtrend. A deterioration in iron ore prices may see downward pressure on the Australian Dollar.

There is already some near-term downward momentum for AUD/USD, as the 21-day simple moving average (SMA) and the 55-day SMA are both pointing lower. However, the spot price has broken above the 21-day SMA and if this is sustained, it may signal sideways trade for a short period.

AUD/USD and IRON ORE PRICES

AUD/USD and IRON ORE PRICES

Chart created in TradingView

--- Written by Daniel McCarthy, Strategist for DailyFX.com

To contact Daniel, use the comments section below or @DanMcCathyFX on Twitter

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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