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Saturday, November 28, 2020

AUD/USD retreats even after strong China manufacturing PMI data

  • The AUD/USD pair declined slightly even after China released strong manufacturing PMI data from China.
  • Data from Markit and China Logistics showed that the PMI remained above 50.
  • The pair probably declined because of the weak housing data from Australia.

The AUD/USD pair declined slightly as traders digested the latest China PMI data. It is also reacting to Australia’s building approvals and private sector credit data. It is trading at 0.7115, which is lower than the intraday high of 0.7147.


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AUD/USD falls after China PMI data

China economy growth continues

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China is the most important Australia’s trading partner. In 2019, the countries did trade worth more than $235 billion. The total exports rose by 23.9% to $153 billion. China exported goods worth more than $82 billion to Australia. At the same time, the country is a leading consumer of Australia’s services like education and tourism. More than 250k Chinese students learn in Australia while more than 1.5 million people visit the country.

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Therefore, the AUD/USD tends to react to Chinese economic data. According to China Logistics, the Chinese manufacturing PMI increased to 51.5 in September. That was slightly higher than the 51.2 that analysts polled by Reuters were expecting. The non-manufacturing PMI rose to 51.5 while the composite PMI rose to 55.1.

Meanwhile, data from Caixin and Markit showed that the manufacturing PMI declined slightly from 53.1 to 53.0. The reading was slightly below the 53.1 that analysts were expecting. These numbers are an indication that the country’s economy is doing well since a PMI reading above 50 is a sign of expansion.

According to Caixin, there was a sharper increase in total new work while companies continued to add into their labour force. The report said:

“”To sum up, the economic recovery has picked up its pace after the epidemic, with both the supply and demand improving. The sharp rise in overseas demand has complemented the domestic market. Manufacturers remained confident about the economy for the next 12 months and they were no longer reluctant to add to their inventories.”

Australia housing data

The AUD/USD is also reacting to credit data released by the Reserve Bank of Australia. The data showed that building approvals declined by 1.6% in August after rising by 12% in the previous month. That decline was better than the 2.0% that analysts at Westpac were expecting. Housing credit rose by 0.2% while private house approvals rose by 4.8% after rising by 8.5% in the previous month.

The relatively weak situation was mostly because of the new wave of the pandemic that started in August. This led to the overall lockdown in Melbourne and Victoria, two of the biggest states in the country. With the government managing the economy well, there is a possibility that growth will return. Tomorrow, the AUD will react to Australia’s PMI data.

AUD/USD technical outlook


AUD/USD
AUD/USD technical analysis

The AUD/USD pair is trading at 0.7115, which is lower than the intraday high of 0.7147. On the daily chart, the price is still below 0.7183, which is the neckline of the head and shoulders pattern. It is also below the 25-day exponential moving average and is approaching the middle line of the Donchian channel. Therefore, I expect that the pair will give up some of the past two days’ gains and resume the downward trend.

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