AUD/USD Bumps Around on China PMI and Good Domestic Data. Where to for Austraian Dollar?

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

• China’s PMI revealed an expansionary outlook despite hurdles
• Restrictions from a zero-case Covid-19 policy still undermine prospects
• Australian data surprised to the upside.Will it help AUD/USD recover?

Chinese manufacturing PMI for June printed at 50.2 against 50.5 anticipated and the non-manufacturing came in at 54.7, a massive beat on the 50.5 forecast. This combined to give a composite PMI read of 54.1 against 48.4 previously.

At the same time that China PMI came out, Australian private sector credit for May showed growth of 0.8% month-on-month against 0.6% expected.

This contributed to an annual read of 9.0% year-on-year instead of 8.6% anticipated. This reveals upward revisions to prior months.

That data was on the back of yesterday’s Australian retail sales for the month of May rising by 0.9% month-on-month instead of 0.4% expected.

The China PMI indices are the result of a survey of 3,000 manufacturers across China, mostly large firms. It is a diffusion index, so a reading over 50 is viewed as a positive for the economic outlook for the world’s second largest economy.

The manufacturing number was a small miss, but the rosy outlook from the non-manufacturing has excited the market. USD/CNH moved lower, reflecting buying of Chinese Yuan on the news.

The backdrop to the Chinese PMI data saw Covid-19 restrictions being eased this week. The number of days required to quarantine on arrival dropped to 10-days from 21-days. This includes quarantine and home monitoring.

This action raised hopes that further easing of restrictions might be forthcoming and an end to the economic crippling zero-case Covid-19 policy might be near. A relaxing of the strict Covid-19 rules is seen as assisting economic growth.

These hopes were quickly dashed when President Xi Jinping came out and said that China will continue with their zero-case policy.

A problem haunting markets is that there doesn’t seem to be any apparent exit strategy for China from the pandemic era.

AUD/USD had been weighed by selling pressure going into today’s data releases. The US Dollar had rallied in recent sessions on recession fears and the Fed’s ability or otherwise to orchestrate a soft landing for the US economy. This appeared to drive the market toward perceived safe havens.

The RBA Governor Philip Lowe said last week that the bank will be debating between a 25 or 50 basis point rate rise at their meeting next Tuesday. Today’s data and yesterdays retails sales numbers might have confirmed the larger rate hike is imminent.

AUD/USD, USD/CNH 1 MINUTE CHART IMMEDIATLEY AFTER THE DATA

Chart created in TradingView

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

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