AUD/USD – Rising Higher despite less than spectacular MNI data

According to Market News International (MNI), Chinese business conditions are “virtually flat” M/M, and lower if seasonality was taken into consideration. New orders and production levels have improved though, but improvement is not strong enough to evoke a stronger bullish sentiment. Current conditions rose to 58.5, higher than March’s 58.2 but was lower than the impressive 61.0 back in Feb. This final read is also slightly lower than the flash 59.3 read given 1 week ago.

Overall, corporations are seeing China economic conditions to be conducive for business, and that suggest that growth will still be forth coming for China in 2013. However, it is also important to note the disappointment market had last week when China’s Q1 GDP was “merely” at 7.7%. The issue at hand is not really whether growth is there for China, the question is how much. Is a bullish sentiment of 58.5 enough for markets, especially since the Flash number last week was stronger at 59.3? Both Shen Zhen and Shanghai Composite Index traded lower after the news was released, suggesting that market does not think that businesses are optimistic enough.

Hourly Chart


That is not the opinions from AUD/USD traders though. Price of AUD/USD actually rallied much higher, though price is still shy of 25th Apr’s high. Price was being gently supported via the Ascending Channel bottom and the improved MNI data helped bulls to muster their strength and push towards the Channel top. What we can infer from is this: underlying sentiment in AUD/USD is still strong. The Aussie dollar has a great correlation to Chinese econs due to the huge mining exports that goes into China. Hence it is interesting to see AUD/USD going in the opposite direction of Chinese stocks following the same news release. A plausible explanation is that the inherent bullish traders of AUD were simply looking for any excuse to buy, and simply looked at the improved MNI headline index as a positive sign, when the truth was probably further closer to neutral.

Daily Chart


Daily chart is pointing higher after the break of 1.03 alleviated bearish pressure from the slide since 1.0550. Stochastic readings being in its infant bullish stages suggest that the 50.0% Fib will be reasonably tested, however given the overall bearish bias, breaking the 1.035 level will be a different order altogether. However, if the hypothesis about inherent bullishness from the Short-term chart is correct, then the previous statement will be invalidated, and a break of 1.035 may negate bearish pressure and allow a retest of 1.06 eventually again.

Why are AUD/USD traders so bullish then? We’ve seen traders ignoring the weaker CPI data earlier in the week, which would have ordinarily spark a fresh new surge in RBA rate cut speculation. Is this a sign that most speculators seeking rate cuts have already made their move? Or perhaps that speculation on further rate cuts in 2013 is diminishing? Without interrogating every single trader in the world, we would only be purely speculating their thoughts here. Nonetheless sentiment is hinting to change, which will be good for bulls in 2013.

More Links:
NZD/USD – Trade Balance Improves but 0.853 not cleared
AUD/USD – Rallies Well Back to 1.03
EUR/USD – Rests on 1.30

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.

Mingze Wu

Mingze Wu

Currency Analyst at Market Pulse
Based in Singapore, Mingze Wu focuses on trading strategies and technical and fundamental analysis of major currency pairs. He has extensive trading experience across different asset classes and is well-versed in global market fundamentals. In addition to contributing articles to MarketPulseFX, Mingze centers on forex and macro-economic trends impacting the Asia Pacific region.
Mingze Wu