The recent manufacturing sector data from China has given mixed signals, with the Non-Manufacturing PMI increasing unexpectedly while the Manufacturing PMI fell slightly. This has led to uncertainty in the market regarding China’s economic performance and its impact on global trade. The steel market demand in China is expected to rebound in September, which could positively affect Australia as a significant iron ore exporter. The steel industry’s traditional peak season could provide a solid foundation for the recovery of downstream demand, ultimately influencing the Aussie dollar’s performance in the market.
Given that China accounts for one-third of Australian exports, any fluctuations in China’s manufacturing sector could directly impact the Australian economy. With over 50% of Australia’s GDP linked to trade, rising exports could have a positive effect on the Aussie economy and the Australian dollar. It is crucial for Australian policymakers and investors to closely monitor China’s manufacturing sector data to anticipate potential shifts in trade dynamics and adjust their strategies accordingly.
Investors are closely watching for comments from the Federal Reserve regarding inflation, the labor market, and the potential rate path. The market is currently betting on a September Fed rate cut, with a 70% chance of a 25-basis point rate cut according to the CME FedWatch Tool. However, the size of the possible rate cut remains uncertain. A 50-basis point rate cut could lead to a narrowing of the interest rate differential between Australia and the US, potentially influencing the AUD/USD exchange rate.
Near-term trends in the AUD/USD pair will likely be influenced by the upcoming PMI numbers from China, the US ISM Services PMI, and the US Jobs Report. A higher US unemployment rate and softer services sector activity could fuel speculation of a 50-basis point rate cut by the Fed in September, potentially pushing the AUD/USD towards $0.68500. Conversely, weaker-than-expected PMI numbers from China could slow down the momentum of the Aussie dollar.
The AUD/USD pair has been comfortably above the 50-day and 200-day EMAs, indicating a bullish trend in the market. A break above the $0.67967 resistance level could support a move towards $0.68500, with a possible further rally towards the $0.68996 resistance level. On the other hand, a drop below $0.67500 could signal a decline towards the $0.67003 support level. With the Daily RSI reading at 60.94, the Aussie dollar may have room to climb towards $0.68500 before reaching overbought territory.
The performance of China’s manufacturing sector has significant implications for the Australian economy and currency. Investors and policymakers should closely monitor economic data and central bank commentary to anticipate market trends and adjust their strategies accordingly. The volatility in the market calls for a proactive approach to managing exposures to the forex markets and staying informed with real-time data and expert analysis.