Week in FX Asia – China: Be Sure To Read Between The Lines

There is a gap and it’s not going to be filled anytime soon. At first glance things look good, but during the second a different story can be told. China’s manufacturing Purchasing Managers Index rose 51.4 last month, up from 51.1 in September, indicating expansion and beating market expectations. If one digs deeper however, a sizable gap between large and small manufactures begins to show, with the latter reporting a contraction in activity.

On the face of it, this would suggest that the positive momentum that drove the fourth consecutive monthly manufacturing increase is “unbalanced.” The global economy, and especially the APAC region, requires China to be recording stable growth, even more so after a soft first half to this year. Declining orders suggests “domestic and external demand may have moderated somewhat after a nice rebound in previous months.”

Questionable growth tends to have a negative impact on regional bourses and the Nikkei 225 is no exception. Japanese equities close this week out on the back foot as the yen firmed against the US dollar before the Stateside trading session. The lack of clarity surrounding PM Abe’s structural reform policies (Third Arrow) seems to be having an effect on foreign investor interest.

Overall, the market is short yen and the IMF this week supports Abe’s policies. These shorts will have to rely on the dollar to move higher and not on the yen to move lower. Natural US dollar demand against the major currencies has pushed the CNY lower on Friday. Expect to see some cautious Yuan trading next week ahead of an important Communist conclave starting post-NFP.


WEEK AHEAD

* AUD Reserve Bank of Australia Rate Decision
* NZD Unemployment Rate
* AUD Employment Change
* AUD Unemployment Rate
* GBP Bank of England Rate Decision
* EUR European Central Bank Rate Decision
* USD Gross Domestic Product
* USD Personal Consumption
* USD Change in Non-farm Payrolls
* USD Unemployment Rate
* CAD Unemployment Rate
* CAD Net Change in Employment
* USD U. of Michigan Confidence
* CNY Consumer Price Index

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Dean Popplewell

Dean Popplewell

Vice-President of Market Analysis at MarketPulse
Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
Dean Popplewell