AUD/USD: Trading the Chinese Flash PMI Jul 2014

Chinese Flash Manufacturing  PMI (Purchasing Managers’ Index) is based on a survey of purchasing managers in the manufacturing sector. Respondents are surveyed for their view of the economy and business conditions in China. A reading which is higher than the market forecast is bullish for the Australian dollar.

Here are all the details, and 5 possible outcomes for AUD/USD.

Published on Thursday at 1:45 GMT.

Indicator Background

Traders should pay close attention to this key release, as China is Australia’s number one trading partner, and an unexpected reading can quickly affect the direction of AUD/USD.

In the May release, the index  pushed above the 50-point line  for the first time this  year, coming in at 50.8 points, beating the estimate of  49.7. The 50-point level is a key  threshold, as it separates contraction from  expansion.   The upward trend is expected to continue, with  the estimate standing at 51.2  points. Will the index follow suit  and  rise  in June?

Sentiments and levels

The Australian dollar  has  had an uneventful summer so far,  as  AUD/USD trades at high levels. The RBA continues to complain about the currency’s high value, but is clearly not willing to back up its criticism with a rate reduction, so these comments have  not had much  effect on the Aussie. US employment numbers continue to impress and the markets will be looking for a rate hike sometime after QE winds up, which will likely be in October, if there are no negative surprises from the US economy. So, the overall sentiment is  neutral on AUD/USD towards this release.

Technical levels, from top to bottom: 0.9700, 0.9526, 0.9441, 0.9369, 0.9282    and 0.9175.

5 Scenarios

1. Within expectations: 49.0 to 53.0: In such a case, AUD/USD is likely to rise within range, with a small chance of breaking higher.
2. Above expectations:  53.1 to 56.1: An unexpected higher reading can send the pair above one resistance line.
3. Well above expectations: Above  56.1: The likelihood of a sharp expansion is low. Such an outcome would push the pair upwards, and a second resistance line might be broken as a result.
4. Below expectations:  46.0 to 47.9: A sharper decrease than forecast could push AUD/USD downwards and break one level of support.
5. Well below expectations: Below 46.0: A very poor reading  could impact on  the Australian dollar and push the pair below a second support level.

For more on the Australian dollar, see the AUD/USD forecast.