AUD/USD was lifted by better than expected Chinese PMI Manufacturing data surveyed by HSBC. Mar’s flash data came in at 51.7, much stronger than analyst forecast of 50.8 and head and shoulders above previous 2 months, which has been languishing just above the 50.0 level. This flash number suggest that manufacturing growth rate is increasing and that is significant considering that Mar is the first month post Christmas and Chinese New Year season which brings higher sales traditionally. The growth in Mar is a good sign that real growth is undergoing, and the likelihood of it being sustainable is high.
Australia will certainly enjoy a growing China, as a growing manufacturing sector will certainly benefit Australia who exports heavily to China. This will help to postpone the decline of Australia’s mining sector that is predicted in 2013. From a technical perspective, the rally is not enough to test the recent high of 1.04 and does not invalidate the current “double top” pattern that is in the midst of forming right now. Even though price has cleared the 38.2% Fib retracement, bullish acceleration may only take place should price clear the 100% fib retracement and preferably Friday’s high.
Downside support can be found in the form of 61.8% and 76.4% lines, which have been providing good supports yesterday. Price may accelerate lower if 1.036 is broken, though preferably Monday lows need to be cleared for fresh bullishness to enter into play.
Daily Chart is sill bearish. Price has cleared the 1.035 resistance though the 1.04 resistance remain. A fall of 1.350 will indicate that current downtrend from 1st Jan remains in play while a convincing break above 1.04 will help invalidate the decline and signal a new trend – possibly sideways between 1.04 – 1.06.
Fundamentally the PMI supports RBA’s sentiment of China, as evident via its recent minutes, supporting the more upbeat tone adopted by RBA recently and signal a lesser likelihood of a rate cut in the near term. However, there may yet be other shocks from Australia. Member of Parliament Simon Crean has requested current PM Gillard for a leadership ballot today, which will be carried out at 4:30pm local time. This added political instability is bearish for the AUD/USD as political infighting during election year (Sep) adds further fear and uncertainty which is generally bad for the economy. If we see a new leader emerge today, or a new Government forming in September, traders may wish to analyze their inclination towards monetary policy and sentiments about the market. If the new leaders are similar to New Zealand’s, it is likely that RBA will be able to maintain their hawkish stance. If the new heads are more like Shinzo Abe, then we could see RBA being forced to adopt a more dovish approach to push for higher easing initiatives.
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