Chinese Manufacturing PMI came in at 50.9, much higher than the 50.1 reading but lower than analysts estimate of 51.2. Even though growth rate has increased significantly M/M, and suggest that further sustained growth in China in 2013 can be reasonably expected, traders sold AUD/USD, preferring to focus on the missing estimate. This months data also continue recent observation of HSBC manufacturing PMI being higher than the official China index – a rare occurrence given “optimism” surrounding Chinese officials when compiling data. HSBC Manufacturing PMI (final) came in at 51.6, slightly higher than estimates of 51.5, and more importantly higher than previous reading of 50.4 echoing official PMI figures showing accelerating growth rates.
The slightly better than expected HSBC figures failed to repair the damage done by the official figures disappointment. Price was looking a tad bearish on Monday open with price gapping 10 pips lower from Friday’s close, yet bullishness prevailed from a technical point of view with price staying afloat above the the descending Channel. Official PMI broke bullish resolve and price trade back into the Channel and below the 1.04 support. Price has been trading lower ever since the failed attempt to breach 1.05 back on 26th Mar, and the overarching bias can be seen from the strong disparity in reaction between the release of 2 figures – one good and one bad. The reaction to bad news and non-reaction to the better data suggest an overall bearish sentiment which has driven price 100 pips lower from the recent high, and could potentially drive prices even lower if left unchecked. Granted that the magnitude of difference is not the same: Official figures missing by 0.3 while HSBC better by 0.1, but we cannot deny that the bearish bias exists, though certainly the degree of biasness is still up for debate especially since price was still relatively supported earlier.
Nonetheless, it will not be surprising to see 1.04 being tested once again as traders begin to digest both data. From a longer term perspective, a return to stronger growth in China will definitely help Aussie support its exports, and should be a long-term bullish factor for AUD/USD.
Bulls on the daily chart is looking precarious with price breaching the 1.04 mark. If 1.04 has been confirmed as broken, the next level of support can be found around 1.035 with a breach potentially re-opening bearish momentum towards parity as technical traders may take this as a signal that the bearish movement from Jan to March low is continuing. Stochastic readings are not supporting bulls either, with signal line heading below 80.0 and the distance between Stoch/Signal appear to be widening – sign of increasing shorter-term bearish momentum.
It is important to note that AUD/USD has been decreasing steadily after last week’s swing high despite the fact that there is very low threat of RBA’s rate cut in the near term. Hence should RBA return to strong dovish tones, or perhaps even start to slash rates unexpectedly, that could be the fundamental driver needed for the push below 1.035 to spark the new downtrend.
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