Australian Dollar, China Manufacturing PMI Talking Points:
- The Australian Dollar slid a little on news that China’s manufacturing sector contracted in December
- The official Purchasing Managers Index came in below 50 for the first time since the middle of 2016
- Trade détente with the US is becoming pressing for the Chinese economy
First-quarter technical and fundamental forecasts from the DailyFX analysts are out now. What will the New Year bring?
The Australian Dollar slipped a little Monday as China’s manufacturing sector registered a shock contraction.
The official Purchasing Managers Index slipped to 49.4 in December, from 50.0 the month before. In the logic of PMIs any reading below 50 signifies a contraction for the sector in question. The latest numbers mark the first sub-50 print since mid-2016. These numbers will underscore the prognosis that China’s economy has slowed markedly into year-end. They also reveal how ill Beijing can afford a protracted trade dispute with Washington.
Admittedly the Chinese service sector did better, registering a PMI of 53.8. That was well above the 53.2 expected. The composite level was 52.6, just below November’s 52.8.
Still, that manufacturing miss will weigh on risk appetite.
The Australian Dollar can act as the foreign exchange markets’ favorite liquid Chine-economy bet thanks to Australia’s vast raw material exports to the world’s second-largest national economy. It seems to have done so in response to the data although falls were not large.
Volume is likely to have been severely constrained by the year-end break and investors’ true feelings about this number may not find expression for a couple of days.
On its broader, daily chart, AUD/USD remains under the duress which has ruled for much of this year. The market may well be rethinking the likely path of US interest rates– and it’s been their rise which has damaged the Aussie so egregiously in the past twelve months.
However, Australian rate-futures contracts now price modest cuts in the record-low 1.50% Official Cash Rate over the coming eighteen months This is despite the Reserve Bank of Australia’s oft-expressed opinion that the next move, when it comes, will be a rise. Markets clearly don’t concur and that could be a big problem for Aussie Dollar bulls as 2019 gets under way.
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— Written by David Cottle, DailyFX Research
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