AUD/USD: Trading the Chinese Flash PMI Aug 2012

The Chinese Flash Manufacturing PMI is based on a survey of purchasing managers in the Chinese manufacturing sector. Respondents are surveyed for their view of the economic 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 2:30 GMT.

Indicator Background

Market analysts are always interested in the views of purchase managers on the economy, as the latter are considered to be attuned to the latest economic and financial developments, and their expectations could be an indication of future economic trends. Traders should pay close attention to this key Chinese release, as China is Australia’s number one trading partner, and an unexpected reading can affect the direction of AUD/USD.

The Chinese Manufacturing PMI posted a reading of 49.5 points in July, but the index has failed to climb above the 50.0 level in and has been below the 50 level since last October. This indicates ongoing contraction in the Chinese manufacturing sector. Will the index show some improvement in the July reading?

Sentiments and levels

The Australian dollar has done very well in the summer of 2012, and  has gained around five  cents since it was at the parity level in  early July.  Given the turmoil in Europe and mixed data out of the US economy, there is room for the currency to make further gains. On the down side, weaker global demand could hurt the critical export sector. Thus, the overall sentiment is bullish on AUD/USD towards this release.

Technical levels, from top to bottom: 1.0718, 1.0605, 1.0557, 1.0482, 1.0402, 1.0340  and  1.0230.

5 Scenarios

1. Within expectations: 46.0 to 52.0: In such a case, AUD/USD is likely to rise within range, with a small chance of breaking higher.
2. Above expectations: 52.1 to 55.0: An unexpected higher reading can send the pair above one resistance line.
3. Well above expectations: Above 55.0: 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: 43.0 to 45.9: A sharper decrease than forecast could push AUD/USD downwards and break one level of support.
5. Well below expectations: Below 43.0: This scenario would indicate deepening contraction in the manufacturing sector. This would likely push the pair down, possibly breaking a second support level.

For more about the aussie, see the AUD/USD forecast.