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Australian Dollar In Whipsaw Trade As China Manufacturing PMI Bounces Back

Australian Dollar, China Manufacturing PMI Talking Points:

  • China’s manufacturing sector staged an incredible comeback in March
  • It bounced from a record output low back to expansion
  • The Australian Dollar bounced, but did not regain its pre-data highs

The Australian Dollar bounced back substantially from a mysterious, sharp pre-data fall Tuesday on news that China’s manufacturing sector surged back to growth this month.

The official Purchasing Managers Index for March came in at 52.0, hugely above both the 44.8 expected and February’s record low of 35.7. In the logic of PMIs it takes a reading above 50 to signify contraction for the sector in question, with anything below that pointing to contraction.

This release suggests an astonishingly rapid bounce back from the nadirs caused by coronavirus-linked shutdowns, and the hope it brings that the worst may be behind the Chinese economy will no doubt be tempered with a degree of scepticism that this can be so.

The non-manufacturing read came in at 42.0, still in contraction but well above the 29.6 reading seen previously. The composite of the two was 53.0. Manufacturers recorded increases in both new orders and employment levels over the month.

The Australian Dollar can often act as a Chinese-economy proxy bet thanks to its homes strong export links with the world’s number two national economy. Its behaviour before this number was very strange, with AUD/USD shedding about a cent in the second before the data were released.

Australian Dollar Vs US Dollar, 5-Minute Chart

Still, even this astonishingly robust figure didn’t put the Aussie back where it was before the number, suggesting that investors are not yet convinced and, in any case, fearful that other major economies will have a long way to go before their data can mirror this performance.

AUD/USD BULLISH

Data provided by

of clients are net long. of clients are net short.

Change inLongsShortsOI
Daily-5%8%1%
Weekly-18%32%2%

As perhaps the quintessential growth-correlated widely traded currency, the Australian Dollar was of course hit hard by the coronavirus global spread. The contagion’s economic effects feed back to Australia on so many levels.

Australian Dollar Vs US Dollar, Daily Chart

Still, the currency has shared fully in the risk revival seen in the last week or so as governments around the world gird themselves for massive stimulus and economic rescue programs, a process crowned of course by last week’s passage through the US Congress of a $2 trillion package.

Still, even the most powerful stimulus can’t take full effect while viral infection rates are rising, and major economies are locked down. The currency will remain very much in thrall to broad risk appetite’s response to coronavirus headlines and it’s hard to see it making durable gains until there’s clear evidenced that the contagion no longer threatens world growth prospects. Needless to say that could be a long time coming.

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— Written by David Cottle, DailyFX Research

Follow David on Twitter@DavidCottleFX or use the Comments section below to get in touch!

https://www.dailyfx.com/free_guide-tg.html?ref-author=Cottle.