AUD/USD: Trading the Chinese Flash PMI Aug 2013

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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.

Manufacturing PMI continues to drop, as the key index fell from 48.3 to 47.7 points in the July release. The markets had predicted a reading of 48.6 points. The PMI has now posted three straight readings below 50, which indicates ongoing contraction in the Chinese manufacturing sector. The markets are expecting a turnaround in the August release, with an estimate of 48.3 points. Will the index reverse its downward trend in the upcoming release?

Sentiments and levels

The markets will be watching the Jackson Hole conference later this week, looking for some clues from the Federal Reserve chair Bernard Bernanke as to QE tapering. If there any hints at a scaling down of QE, the US dollar could take off and post some strong gains against the Aussie. As well, the RBA will publish the minutes of its most recent policy meeting, at which time the RBA reduced its key interest rate to 2.50%. If the minutes are pessimistic about the Australian economy, we could see the Aussie take a hit. So, the overall sentiment is bearish on AUD/USD towards this release.

Technical levels, from top to bottom: 0.9428, 0.9283, 0.9180. 0.9041, 0.90  and 0.8893.

5 Scenarios

  1. Within expectations: 45.0 to 51.0: In such a case, AUD/USD is likely to rise within range, with a small chance of breaking higher.
  2. Above expectations: 51.1 to 55.0: An unexpected higher reading can send the pair above one resistance line.
  3. Well above expectations: Above 55.0: Given the current downward trend, 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: 42.0 to 44.9: 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 the Aussie and push the pair below a second support level.

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

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About Author

Kenny Fisher - Senior Writer A native of Toronto, Canada, Kenneth worked for seven years in the marketing and trading departments at Bendix, a foreign exchange company in Toronto. Kenneth is also a lawyer, and has extensive experience as an editor and writer.

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