China's Caixin Manufacturing Purchasing Managers' Index (PMI) jumped to 50.4 in August after recording 49.8 in July, the latest data showed on Monday.
The market forecast was for a 50.0 figure in the reported month.
Key highlights (via Caixin)
Faster output expansion in August.
Employment stabilises following 11-month run of decline.
Average selling prices fall alongside input costs.
“Supply and demand expanded at different paces. Manufacturers’ output grew for the 10th straight month in August, accelerating slightly from the previous month,” said Wang Zhe, an economist at Caixin Insight Group.
Wang added, “Demand picked up as total new orders resumed growth, with stronger demand for intermediate goods.”
Data released by China’s National Bureau of Statistics (NBS) showed Saturday that the official Manufacturing Purchasing Managers' Index (PMI) fell to 49.1 in August, missing estimates of 49.5. The Non-Manufacturing PMI rose to 50.3 in the same period vs. July’s 50.2 and the expected 50.0 print.
AUD/USD reaction to China’s PMI data
The upbeat Chinese Manufacturing PMI failed to have little to no impact on the Aussie Dollar, as AUD/USD keeps its range near 0.6770 at the time of writing, up 0.12% on the day.
Australian Dollar FAQs
One of the most significant factors for the Australian Dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). Because Australia is a resource-rich country another key driver is the price of its biggest export, Iron Ore. The health of the Chinese economy, its largest trading partner, is a factor, as well as inflation in Australia, its growth rate and Trade Balance. Market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – is also a factor, with risk-on positive for AUD.
The Reserve Bank of Australia (RBA) influences the Australian Dollar (AUD) by setting the level of interest rates that Australian banks can lend to each other. This influences the level of interest rates in the economy as a whole. The main goal of the RBA is to maintain a stable inflation rate of 2-3% by adjusting interest rates up or down. Relatively high interest rates compared to other major central banks support the AUD, and the opposite for relatively low. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former AUD-negative and the latter AUD-positive.
China is Australia’s largest trading partner so the health of the Chinese economy is a major influence on the value of the Australian Dollar (AUD). When the Chinese economy is doing well it purchases more raw materials, goods and services from Australia, lifting demand for the AUD, and pushing up its value. The opposite is the case when the Chinese economy is not growing as fast as expected. Positive or negative surprises in Chinese growth data, therefore, often have a direct impact on the Australian Dollar and its pairs.
Iron Ore is Australia’s largest export, accounting for $118 billion a year according to data from 2021, with China as its primary destination. The price of Iron Ore, therefore, can be a driver of the Australian Dollar. Generally, if the price of Iron Ore rises, AUD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Iron Ore falls. Higher Iron Ore prices also tend to result in a greater likelihood of a positive Trade Balance for Australia, which is also positive of the AUD.
The Trade Balance, which is the difference between what a country earns from its exports versus what it pays for its imports, is another factor that can influence the value of the Australian Dollar. If Australia produces highly sought after exports, then its currency will gain in value purely from the surplus demand created from foreign buyers seeking to purchase its exports versus what it spends to purchase imports. Therefore, a positive net Trade Balance strengthens the AUD, with the opposite effect if the Trade Balance is negative.
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