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China leads the way

Today’s pan-Asia PMI releases were a mixed bag with one noticeable exception, China’s Caixin Manufacturing PMI for August again impressively outperformed. The Caixin PMI rose to 53.1 from 52.6 in July, reinforcing that China is leading the region out of the pandemic recession. The result was more pleasing as the official Manufacturing PMI yesterday stalled, even as services surged. The net result between the two releases suggests that China is firing on nearly all its cylinders.

Elsewhere, the regional PMI’s were a mixed bag and not as positive as I had expected. Thailand, Japan, South Korea all improved, although they are still in contraction territory. Taiwan continued to outperform, while Vietnam and Malaysia went backwards. It suggests that the recovery ex-China is still uneven and more than a little fragile. In itself, it will not be enough to derail local currencies and equities, as against the US dollar and a search for yield story. One bright note would be that the major economies of Asia continue to show consistent improvement.

Australia’s Q2 Currency Account climbed to a record AUD 17.7 billion this morning, with Building Permits for July sharply rebounding to 12.0% in July from -4.2% in June. The lucky country’s exports are powering ahead on China demand for commodities, while domestic activity continues to rebound after the Covid-19 lockdowns. That won’t be enough to sway the Reserve Bank of Australia this afternoon at 1230 SGT. We expect the RBA to remain unchanged with a strongly Fed-like lower for longer, whatever it takes guidance. One thing they will not mention is negative rates, where thankfully they are refusing to enter that monetary policy box canyon.

The positive data was not enough to lift Australian equities today though, with markets focused on the detention by China of a China-based Australian journalist. Markets are fretting over the deterioration of relation between China and Australia, with China launching “probes” into Australian wine, beef and barley as well. I do believe concerns are overblown though. Despite the rocky relationship, China has not touched the holy trinity it receives from Australia, thermal coal, iron and copper ore. With China’s economy clearly recovering, Australia is likely to dodge the worst of China’s kneecapping approach to international relations with countries that disagree with it. Except for Australia and the United States though, most other nations and blocs should probably continue to wear protective padding.

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.

Jeffrey Halley

Jeffrey Halley [4]

Senior Market Analyst - Asia Pacific
With more than 30 years of FX experience – from spot/margin trading and NDFs through to currency options and futures – Jeffrey Halley is OANDA’s senior market analyst for Asia Pacific, responsible for providing timely and relevant macro analysis covering a wide range of asset classes. He has previously worked with leading institutions such as Saxo Capital Markets, DynexCorp Currency Portfolio Management, IG, IFX, Fimat Internationale Banque, HSBC and Barclays. A highly sought-after analyst, Jeffrey has appeared on a wide range of global news channels including Bloomberg, BBC, Reuters, CNBC, MSN, Sky TV, Channel News Asia as well as in leading print publications including the New York Times and The Wall Street Journal, among others. He was born in New Zealand and holds an MBA from the Cass Business School.
Jeffrey Halley
Jeffrey Halley

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