Australian Dollar Jolted by Soft China Data and Mixed Local Action. Lower AUD/USD?

Australian Dollar, China PMI, AUD/USD, Credit, ABS, CPI, RBA – Talking Points

• The Australian Dollar eyed a new low after Chinese data disappointed
• Domestic data showed some credit expansion and CPI inching higher again
• The RBA might ignore today’s inflation read. Will AUD/USD battle to hold ground?

The Australian Dollar dipped toward its six-month low under 65 cents after Chinese PMI missed forecasts. The data appears to have further fermented the perception that the world’s second-largest economy is struggling to reignite growth as it re-emerges out of the pandemic era.

Chinese manufacturing PMI for May printed at 48.8 against the 49.5 anticipated and the non-manufacturing came in at 54.5, against the 55.2 forecast. This combined to give a composite PMI read of 52.9 against 54.4 previously.

The China PMI indices are the result of a survey of 3,000 manufacturers across China, mostly large firms. It is a diffusion index, so a reading over 50 is viewed as a positive of the economic outlook for the Middle Kingdom.

At the same time that China PMI came out, Australian private sector credit for April showed growth of 0.6% month-on-month against the 0.3% expected.

This contributed to an annual read of 6.6% year-on-year against 6.8% prior. The monthly CPI gauge from the Australian Bureau of Statistics (ABS) ticked higher to 6.8% year-on-year to the end of April, above forecasts of 6.4% and 6.3% previously.

Today’s data comes on the back of yesterday’s disappointing Australian building approvals for the month of April which fell by -8.1% month-on-month instead of the 2% rise that had been anticipated.

Elsewhere today, RBA Governor Philip Lowe appeared before the Senate Economics Legislation Committee earlier in the day and he reiterated the bank’s determination to fight inflation.

He cited the issues of wage-price pressures and the difficulties of getting CPI back within the target range of 2- 3% when the wage-price index is at 3.7%. He also noted that September will see a significant amount of fixed-rate mortgages rolling off from very low rates to today’s much higher borrowing costs.

Interest rate futures are expecting no change at the RBA’s monetary policy meeting next Tuesday.

For the Aussie Dollar, a sluggish Chinese economy and a negative interest rate differential to many parts of the world might continue to undermine the currency.

AUD/USD PRICE REACTION – 1-MINUTE CHART

Chart created in TradingView

— Written by Daniel McCarthy, Strategist for DailyFX.com

Please contact Daniel via @DanMcCarthyFX on Twitter