Monday, September 26, 2022

Aussie Dollar Points Higher After Strong Chinese PMI Data


Australian Dollar, RBA, Chinese Caixin PMIs, AUD/USD – Talking Points

  • Chinese Services PMI prints 54.9, Composite PMI prints 53.1 for month of July
  • Australian Dollar under pressure, struggling below Sept. 2020 swing high
  • Reserve Bank of Australia moves ahead with tapering of bond buying program

Chinese PMI data surpassed expectations on Wednesday, bringing much needed tailwinds for the Chinese economy. The Caixin Services PMI for July came in at 54.9, against a previous reading of 50.3. The Caixin Composite PMI came in at 53.1, up from a reading of 50.6 for the month of June. A reading above 50 for PMI data is regarded as bullish, and may help cool worries over China’s slowing economic growth. Concerns about a slowdown in China has made many market participants reconsider global growth projections, which may explain the recent leg lower in the 10-year US Treasury yield.

Chinese Economic Calendar

AUD/USD Analysis: Aussie Dollar Points Higher After Strong Chinese PMI Data

Courtesy of the DailyFX Economic Calendar

The Chinese economy has shown signs of declining growth, with Q2 GDP data pinpointing a slowdown that has struck fear across global markets. Concerns over “peak growth” have seen US Treasury bonds catch a bid in recent weeks, with the 10-year Treasury yield falling as low as 1.14% on Monday. High commodities prices, conservative consumer spending, and a sluggish real estate market were all at the forefront of China’s slowdown in the second quarter. With fears now returning over Covid and potential lockdowns, China’s economy remains extremely vulnerable. As a result, the People’s Bank of China has hinted at further easing of monetary conditions, either through liquidity injections or additional cuts to reserve requirements for banks.

AUD/USD Daily Chart


Chart provided by TradingView

The Australian Dollar has been hit hard of late, feeling the wrath of a “flight to quality” as fears mount over the Delta Covid variant and global growth projections. A persistent bid in the US Dollar and US Treasury bonds has seen AUD/USD slump to fresh yearly lows in July. Confirmation of the downtrend came in July, with the 50-day moving average (MA) falling below the 200-day MA. A slowdown of economic conditions in China may present significant headwinds for the Australian Dollar, given the trading relationship between the two nations. According to official government data, China is the largest trade partner of Australia.

Currently AUD/USD sits just below the 0.7400 level, with further resistance found above at 0.7414 in the form of the September swing high. Despite the Reserve Bank of Australia moving ahead with plans to taper asset purchases, the near-term outlook remains bleak due to the announcement of lockdowns in Brisbane and Sydney. A retreat in US Treasury yields on Tuesday coupled with risk-on sentiment in equity markets propelled AUD/USD higher. However, more conviction may be required to shift the tone surrounding the Australian Dollar. Downward pressure may remain on the Aussie unless the fundamental outlook improves mightily in the near term.

— Written by Brendan Fagan, Intern

To contact Brendan, use the comments section below or @BrendanFaganFX on Twitter

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