The Australian Dollar declined against all of its counterparts after China’s non-manufacturing PMI gauge weakened to 54.5 in February versus 56.2 in January, marking the weakest outcome in 5 months. The slowdown in the pace of service-sector activity combined with last week’s worse-than-expected manufacturing PMI figure, point to a weakening recovery in China.
The East Asian giant is Australia’s largest trading partner and a key source of demand for its pivotal mining sector. That means that softer performance there carries negative implications for Australian economic growth and may lead toward additional RBA interest rate cuts, eroding yield-based support for the Aussie Dollar.
Besides its direct implications for the Aussie, the disappointing PMI result likewise drove risk aversion across Asian exchanges amid worries about the impact of slowing China on growth trends around the region, where many countries’ export sectors are underpinned by demand from the world’s number-two economy. That compounded pressure on the Australian unit as investors unwound carry-seeking trades in the relatively high-yielding currency. Not surprisingly, the Aussie saw its biggest losses against the Yen – the go-to carry funding currency – sliding as much as 0.8 percent.
AUD/JPY 1-Minute Chart
Charted Created by Robin Leung using Marketscope 2.0
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