Chinese PMI preview (first since Yellen) - watch AUD/USD

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Apr 1, 2016.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

    Oct 7, 2015
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    AUD/USD is quite a topic in the FX space currently. The major commodity currency has risen at a fast past this month in an acceleration of the 2016 recovery from 0.6827 to recent highs of 0.7722. While the Australian economy and China have taken a back seat in recent sessions (besides Yellen's concerns for Global growth factors), things are about to pipe up again with China's PMI's coming up and the RBA next week.

    AUD/USD has reached a pivotal point and is struggling at a strong resistance level at the 0.77 handle. There has been a lack of domestic drivers for the Aussie and it has been able to ride the wave of dollar weakness to a point. Now the bulls need something fundamental to break through this psychological level and today, China releases its official NBS manufacturing PMI along with Non- Manufacturing PMI (Mar) at 0100 GMT. Forty-five minutes later, this will be back up by Caixin Manufacturing PMI (Mar).

    Analysts at TD securities explained that the NBS manufacturing PMI is expected to potentially show a seasonal bounce, helped by aggressive Q1 credit disbursement, but added that the underlying details are likely to remain unconstructive. "Higher frequency Chinese data, such as the PMIs may take increasing importance for markets, given the Fed's seemingly heightened focus on global growth factors in policymaking."

    This is what Fed Chairwomen Yellen and market is now focused on

    Given Yellen's recent rhetoric and specific concerns that were expressed about Chinese growth momentum and “global factors”, the data today from China will take on an increased interest from markets.

    Analysts at TD securities noted that the evolution of the Chinese PMIs have been "wholly unconstructive" since mid-2015 when they explained that the manufacturing sector PMI headline index fell below 50 and has remained below, with an acceleration to the downside in the January and February reads. "Indeed, the 12-month moving average trend has been printing below 50 since November, the first time this has happened since the global financial crisis."

    China data: what is the market looking for? - TDS

    NBS Manufacturing PMI - China

    RBA will be in focus next week

    On a quick note in respect to the RBA, who meet next week on Tuesday, focus will be on the Aussie (as well as today's result in China''s performance) and how far its has climbed away from the Central banks desired 0.65c level and in such a short period, especially in respect to the value of commodities this last two months. The statement will hold the markets attention, looking for changes in the commentary around the value of the price in the local currency.

    "Changing that commentary would certainly see markets increasing rate cut probabilities in the face of any further appreciation in the AUD," explained Bill Evans, Chief Economist at Westpac.

    "We expect that, like ourselves, the RBA will be skeptical about the recent “recovery” in commodity prices and, more importantly, like ourselves, still expects the Federal Reserve to raise rates in June...Accordingly, we do not expect to see any significant changes in the Governor's Statement next week." Time will tell...

    Nonfarm payrolls coming up...

    Also to note is the NFP tomorrow. The recent ADP report was positive and could be a positive prelude for the jobs data tomorrow. It might take a significant upside surprise mind you, to shift the gears in respect to the dollars current trajectory.

    AUD/USD levels to monitor. A close above 0.7680 on a daily basis should give life to the bulls and 0.77 will provide a platform, turning to support while bulls target 0.7850 (38.2% retracement of move down from 2014) before achieving a critical level as 0.8030/50.

    On the other hand, on a poor data result from Chin,a the bullish undertone could be wiped out entirely. Aussie bulls are treading on thin ice around the 0.7650 level that was a resistance earlier in week on two occasions. This level was broken overnight until demand at 0.7634. However, a break below US session lows opens 0.7510 as the next key target below the 200 sma on the 1hr time frame at 0.7578.
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