Aussie remains firm following China PMI data

VaselineSeptember 30, 2024

0 6 minutes read

Aussie remains firm following China PMI data

Aussie gains ground on divergent policy outlook between RBA and Fed.
China’s Caixin Manufacturing PMI fell to 49.3 in September, down from 50.4 in August.
Traders will likely focus on Fed Chairman Jerome Powell’s speech on Monday.

The Australian dollar (AUD) continues its winning streak for the third consecutive session on Monday. AUD remains stronger despite mixed purchasing managers’ index (PMI) data from China, Australia’s largest trading partner. In addition, growing expectations that the US Federal Reserve (Fed) may continue its policy easing in November is weakening the US dollar and supporting the AUD/USD pair.

China’s Caixin Manufacturing Purchasing Managers’ Index (PMI) fell to 49.3 in September, indicating a contraction, from 50.4 in August. Meanwhile, the Caixin Services PMI fell sharply to 50.3 from 51.6 in August, reflecting a slowdown in the services sector.

The US dollar came under downward pressure following Friday’s US Personal Consumer Expenditure (PCE) price index data for August. The monthly index rose 0.1% on the month, coming in below an expected 0.2% rise, aligning with the Federal Reserve’s view that inflation is easing in the US economy. This strengthened the possibility of an aggressive rate cut cycle by the Fed.

The CME FedWatch tool indicates that markets assign a 42.9% probability of a 25 basis point rate cut by the Federal Reserve in November, while the probability of a 50 basis point increase at 57.1%, up from 50.4% a week ago.

Daily Digest Market Movers: Australian dollar rises on RBA’s dovish stance

The National Bank of China PMI (PMI) improved to 49.8 in September, up from 49.1 the previous month and beating the market consensus of 49.5. However, the non-manufacturing PMI fell to 50.0 in September, compared with 50.3 in August and below the expected level of 50.4.
The Reserve Bank of Australia’s (RBA) murky stance is helping the Australian dollar rise. The RBA kept its cash rate at 4.35% for the seventh consecutive meeting and said policy would need to remain tight to ensure inflation slows.
The President of the Federal Reserve in St. Louis Alberto Musalem said on Friday, according to the Financial Times, that the Fed should start cutting interest rates “gradually” after a half-point cut larger than usual at its September meeting. Musalem acknowledged the possibility that the economy could weaken more than anticipated, saying, “If that were the case, then a faster pace of rate cuts might be appropriate.”
During his visit to China, Australian Treasurer Jim Chalmers had frank and productive discussions with the National Development and Reform Commission (NDRC). Chalmers highlighted China’s economic slowdown as a key factor in weaker global growth, while hailing the country’s new stimulus measures as a “really welcome development”.
Annualized US Gross Domestic Product rose at a 3.0% rate in the second quarter, as previously estimated, according to the US Bureau of Economic Analysis (BEA). Meanwhile, the GDP Price Index rose 2.5% in the second quarter.
China plans to inject more than CNY 1 trillion in capital into its biggest state-owned banks, facing challenges such as shrinking margins, falling profits and rising bad loans. This substantial infusion of capital would mark the first of its kind since the 2008 global financial crisis.
According to the Reserve Bank of Australia’s September 2024 Financial Stability Review, Australia’s financial system remains resilient, with risks largely contained. However, notable concerns include stress in China’s financial sector and the limited response from Beijing to address these issues. Domestically, a small but growing proportion of Australian home borrowers fall behind on their payments, although only around 2% of owner-occupier borrowers are at serious risk of default.
The Commonwealth Bank of Australia (CBA) expects the RBA to revise its consumption forecasts downward in November. The RBA has already acknowledged downside risks to its current outlook. This potential revision, combined with expectations of further unemployment growth and lower average inflation in line with CBA forecasts, could position the RBA to implement rate cuts before the end of the year.

Technical analysis: The Australian dollar remains above 0.6920, the lower limit of an ascending channel

AUD/USD is trading near 0.6920 for the month. Technical analysis of the daily chart shows that the pair is moving along the lower boundary of an ascending channel pattern. The AUD/USD pair remains above the boundary, indicating continued bullish momentum. Additionally, the 14-day Relative Strength Index (RSI) remains above the 50 level, confirming bullish sentiment.

In terms of resistance, the AUD/USD pair could target the region near the upper limit of the ascending channel, which is around the 0.7000 level. If the pair successfully breaks this level, it could signal further bullish potential. However, failure to penetrate could result in a pullback inside the channel.

On the downside, a break below the lower limit of the ascending channel could weaken the uptrend and lead the AUD/USD pair to test the nine-day exponential moving average (EMA) at 0.6853. A break below this level could trigger a bearish trend and lead the pair to navigate the region around its six-week low of 0.6622.

AUD/USD: Daily chart

Australian Dollar PRICE Today

The table below shows the percentage change of the Australian Dollar (AUD) against the major listed currencies today. The Australian dollar was the strongest against the Japanese yen.

	USD	EURO	GBP	JPY	CAD	AUD	NZD	CHF
USD		0.06%	-0.02%	0.03%	0.05%	-0.21%	-0.32%	-0.06%
EURO	-0.06%		-0.07%	-0.02%	0.03%	-0.20%	-0.35%	-0.03%
GBP	0.02%	0.07%		0.15%	0.09%	-0.13%	-0.28%	0.03%
JPY	-0.03%	0.02%	-0.15%		0.09%	-0.29%	-0.32%	-0.02%
CAD	-0.05%	-0.03%	-0.09%	-0.09%		-0.22%	-0.38%	-0.06%
AUD	0.21%	0.20%	0.13%	0.29%	0.22%		-0.15%	0.17%
NZD	0.32%	0.35%	0.28%	0.32%	0.38%	0.15%		0.29%
CHF	0.06%	0.03%	-0.03%	0.02%	0.06%	-0.17%	-0.29%

The heatmap shows the percentage changes of major currencies against each other. The base currency is chosen from the left column, while the quoted currency is chosen from the top row. For example, if you choose the Australian dollar in the left column and move along the horizontal line to the US dollar, the percentage change shown in the box will be AUD (base)/USD (quote).

Australian Dollar FAQ

One of the most important factors for the Australian dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). Because Australia is a resource-rich country, another key factor is the price of its biggest export, iron ore. The health of the Chinese economy, its largest trading partner, is a factor, as is Australia’s inflation, growth rate and trade. Balance. Market sentiment – whether investors are taking riskier assets (risk-on) or seeking safe havens (risk-off) – is also a factor, with risk positive for the AUD.

The Reserve Bank of Australia (RBA) influences the Australian dollar (AUD) by setting the level of interest rates at which Australian banks can lend to each other. This influences the level of interest rates in the economy as a whole. The main aim of the RBA is to maintain a stable inflation rate of 2-3% by adjusting interest rates up or down. Relatively high interest rates compared to other major central banks support the AUD, and the opposite for relatively low. The RBA can also use quantitative easing and tightening to influence lending conditions, the former AUD-negative and the latter AUD-positive.

China is Australia’s largest trading partner, so the health of the Chinese economy has a major influence on the value of the Australian dollar (AUD). When the Chinese economy is doing well, it buys more raw materials, goods and services from Australia, increasing demand for the AUD and pushing up its value. The opposite is the case when the Chinese economy is not growing as fast as expected. Therefore, positive or negative surprises in China’s growth data often have a direct impact on the Australian dollar and its pairs.

Iron ore is Australia’s biggest export, accounting for $118 billion a year, according to 2021 data, with China as the main destination. Therefore, the price of iron ore can be a driver of the Australian dollar. Generally, if the price of iron ore rises, so does the AUD, as aggregate demand for the currency rises. The opposite is true if the price of iron ore falls. Higher iron ore prices also tend to result in a higher likelihood of a positive trade balance for Australia, which is also positive for the AUD.

The balance of trade, which is the difference between what a country earns from its exports versus what it pays for its imports, is another factor that can influence the value of the Australian dollar. If Australia produces highly sought after exports, then its currency will only gain in value from the excess demand created by foreign buyers wanting to buy its exports over what it spends on buying its imports. A positive net trade balance therefore strengthens the AUD, with the opposite effect if the trade balance is negative.

VaselineSeptember 30, 2024

0 6 minutes read