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Market update: Australian dollar spikes after China PMI beat


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AUD rose after China manufacturing activity beat expectations and AUD/USD is attempting to break above key resistance.

 

original-size.webpSource: Bloomberg

 

 Manish Jaradi | IG Analyst, Singapore | Publication date: Thursday 31 August 2023 

AUD gains against USD

The Australian dollar rose briefly against the US dollar on tentative signs that China's manufacturing activity could be reviving. China NBS manufacturing PMI rose slightly to 49.7 in August vs. 49.4 expected, and 49.3 in July. NBS non-manufacturing PMI slowed to 51.0 vs. 51.1 expected and 51.5 in July. While the manufacturing sector is still in contraction territory, the improvement provides comfort that the recent stimulus measures are spilling over the economy. 

Thursday’s data is in line with the recent less-worse-than-expected China macro data, but still  broadly underwhelming, as the Economic Surprise Index shows. The China Economic Surprise Index has rebounded slightly recently, but it is not too far from mid-2020 lows (Covid levels) which has prompted analysts to downgrade growth estimates for the current year.

China is Australia’s largest export destination and changes in the world’s second-largest economy tend to have implications for the Australian economy.

China adopts targeted stimulus approach

Chinese policymakers have responded with a spate of targeted stimulus measures in recent months in an attempt to revive the faltering post-Covid recovery and a struggling property sector. However, with a massive stimulus seemingly off the table (given the associated risks of creating imbalances within the economy), broader risk sentiment is likely to drive AUD in the interim. 

AUD/USD 5-minute chart

 

original-size.webpSource: TradingView

Rate hikes unecessary now

Risk appetite has been contained for now as recent soft data doesn’t suggest a resurgence in US economic growth, capping US yields and weighing on the US dollar globally. The stabilisation in risk sentiment has overshadowed the moderation in Australian inflation, lessening the need for further rate hikes by the Reserve Bank of Australia.

AUD/USD weekly chart

 

original-size.webpSource: TradingView

AUD/USD technical analysis

On technical charts, AUD/USD is attempting to break above a vital ceiling at last week’s high of around 0.6500. A decisive break above could pave the way toward the 200-period moving average on the 240-minute charts (now at about 0.6600). 

Bearish pressure on AUD/USD has eased recently – a possibility highlighted in the previous update.

AUD/USD 240-minute chart

 

original-size.webpSource: TradingView

This information has been prepared by DailyFX, the partner site of IG offering leading forex news and analysis. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

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