- Chinese Caixin Manufacturing PMI May: 50.2 (exp 50.0; prev 50.2).
- AUD/USD has printed a fresh high above 0.69450 post the data.
Following last week’s disappointment in data whereby China’s official manufacturing PMI fell to 49.4 indicating that activity is contracting, the Aussie has popped on the relief in Chinese Caixin Manufacturing PMI May beating expectations and staying above water at 50.2 (exp 50.0; prev 50.2). In other fundamentals, the RBA and trade relations between the US, China and Mexico is in focus.
Casting minds back to last week, risk took a beating which sent U.S. yields lower on the presumption that the Fed will likely cut-rate is the second half of this year which sank the dollar and enabled the Aussie to climb. AUD/USD moved up from a low of 0.6926 despite the prospects of slower global growth and intensifying geopolitics around global trade. Trump has extended is threats of tariffs towards Mexico in a plight to encourage the nation to work with the U.S. to crack down on illegal immigration. In doing so, investors have fled from stocks which sent yields to the lowest levels since September 2017. The ten year dropped from 2.18% to 2.13%. AU 10yr yields rose from 1.46% to 1.495%, before retracting back to 1.47% and the AU-US 10 year spread widened to -65.5bp as USTs continued to rally. Looking ahead, the market is fully priced for a cut when the RBA meet tomorrow, with a second cut factored in by September and a terminal rate around 0.80% by June 2020.
AUD/USD levels
Valeria Bednarik, The Chief Analyst at FXStreet, explained that “the daily chart for the AUD/USD pair shows that it settled below the 23.6% retracement of its latest daily slide at 0.6945 and around a bearish 20 DMA while well below the larger ones:
“The 100 DMA converges with the 61.8% retracement of the same decline at around 0.7080, providing a mid-term inflection point. Technical indicators in the mentioned chart, have extended their recoveries but remain within negative levels, suggesting that bulls are not strong enough. Shorter term, and according to the 4 hours chart, the pair offers a neutral stance, as it settled a few pips below the 20 and 100 SMA, both converging without directional strength, while technical indicators turned flat after entering positive territory. The 200 SMA maintains a strong bearish slope, converging with the 38.2% retracement of the mentioned slide at around 0.7000.”
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