AUD/USD: Trading the Chinese Flash PMI Jul 2013

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 Wednesday at 1:45 GMT.

Indicator Background

The Australian dollar is sensitive to key releases out of China, as the Asian giant is Australia’s number one trading partner. So, an unexpected reading can affect the direction of AUD/USD.

The Flash Manufacturing PMI has been losing ground recently, and has  dropped below the 50-point level for the past two releases. A reading below 50 indicates contraction. Little change is expected in the upcoming release, with an estimate of 48.6 points.

Sentiments and levels

The Australian dollar  showed some improvement  early last week,  courtesy of    the RBA minutes which  pointed to a decreased likelihood  of an interest rate cut. However, Australian  numbers have not impressed, and China  has experiencing a slowdown in growth. The Australian dollar  is sensitive to Chinese data, as the Asian giant is Australia’s number one trading partner. So, weakness in China could  spell trouble  for the Australian dollar. Meanwhile, the US economy appears to be on the right track, and the employment picture is stable. Thus, the overall sentiment is bearish on AUD/USD towards this release.

Technical levels, from top to bottom: 0.9549, 0.9428, 0.9283, 0.9170, 0.9041 and 0.9000.

5 Scenarios

1. Within expectations: 46.0 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 57.0: An unexpected higher reading can send the pair above one resistance line.
3. Well above expectations: Above  57.0: Such an outcome would push the pair upwards, and a second resistance line might be broken as a result.
4. Below expectations:  42.0 to 45.9: A sharper decrease than forecast could push AUD/USD downwards and break one level of support.
5. Well below expectations: Below 42.0: A very poor reading  could  hurt on  the Australian dollar ,and push the pair below a second support level.

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

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