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Talking Points:

• China’s manufacturing PMI posted a reading of 49.8 in October

• Aussie Dollar opened lower in trading week on soft Chinese data

• China’s PMI added to global growth concerns and RBA dovish expectations

The Australian Dollar opened lower against its US counterpart as soft PMI data from China crossed the wires before the start of the trading week. The second largest economy’s manufacturing PMI matched its previous reading at 49.8 but fell below the 50 forecast. Non-manufacturing PMI showed a print of 53.1 as opposed to its 53.4 prior mark. This is the lowest figure since 2008. It is important to note that a print under 50 represents a contraction in the sector.

From the Aussie Dollar’s viewpoint, this data has direct implications for diminished export demand. China is Australia’s largest trade partner and its manufacturing sector has fueled much of the demand for Australia’s raw materials. The soft data may also affect RBA monetary policy expectations. A reduction in Chinese demand may weigh on Australian CPI and trade figures. The markets are pricing in a seventy-four percent chance the RBA will cut rates at its next policy meeting.

Moving towards the global perspective, the health of the Chinese economy was been a concern for traders who fear that an international slowdown is looming over the markets. The IMF and Fed Chair Janet Yellen have voiced concerns regarding the health of developing countries. This has led traders to think that a slowdown in China can have spillover affects into other countries, which will affect asset prices.

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original source

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