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Australian Dollar Weighs Strong China PMI Against Weak Domestic Data. Where to for AUD/USD?

Australian Dollar Weighs Strong China PMI Against Weak Domestic Data. Where to for AUD/USD?

Daniel McCarthy, Strategist

Australian Dollar,AUD/USD, China, US Dollar, USD/CNY - Talking Points

  • China’s PMI revealed a stronger than expected outlook despite lockdowns
  • Restrictions from a zero-case Covid-19 policy still undermine prospects
  • Australian and Japanese data netted out the positives. Where to for AUD/USD?

The Australian Dollar had a mute reaction to China’s PMI numbers after domestic building approvals data surprised to the downside.

Chinese manufacturing PMI for May printed at 49.6 against 49.0 anticipated and the non-manufacturing came in at 47.8 instead of 45.5 forecast.

Australian building approvals sunk -2.4% month-on-month in April instead of rising by 2.0% as expected.

The Aussie had been under pressure going into today’s data after a number of headwinds began to build earlier in the session.

Released in the hours prior, Japan’s year-on-year industrial production soured the mood for markets, coming in at -4.8% instead of -3.6% anticipated.

Additionally, comments from Federal Reserve Governor Christopher Waller once again opened the pandora’s box on a more aggressive rate hike path for the Fed.

He was quoted as saying, "I am not taking 50 basis-point hikes off the table until I see inflation coming down closer to our 2% target."

Treasury yields had been ticking up prior to the data, undermining risk assets, including the Australian Dollar.

The backdrop to the Chinese PMI data saw Covid-19 restrictions being eased as Beijing and Shanghai saw fewer cases. A problem haunting markets is that there doesn’t seem to be any apparent exit strategy for China from the pandemic era.

Despite the strong PMI today, the zero-case Covid-19 policy continues to wreak havoc on the world’s second largest economy. The growth outlook for China remains a concern for global trade the Australian Dollar is vulnerable to these sways in perception of China’s prospects.

AUD/USD 1 MINUTE CHART IMMEDIATLEY AFTER THE DATA

AUDUSD CHART

Chart created in TradingView

AUD/USD TECHNICAL ANALYSIS

AUD/USD broke out of a descending trend channel last week and has mostly held onto the gains since then.

Going into the end of last week, a Golden Cross was observed when the 10-day simple moving average (SMA) crossed the 21-day SMA which may suggest evolving bullish near term momentum.

The gradients of those two SMAs are positive, supporting the thesis. Working against it, the 55-, 100- and 260-day SMAs remain above the price. Those three SMAs might offer resistance as well as the recent peak of 0.7265.

On the downside, support could rest at the recent low of 0.7038 or the 10- and 21-day SMAs.

Australian Dollar Weighs Strong China PMI Against Weak Domestic Data. Where to for AUD/USD?

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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