AUD/USD: Trading the Chinese Flash PMI Jul 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 Tuesday 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 key Chinese data, as China is Australia’s number one trading partner, and unexpected readings can affect the direction of AUD/USD.

The Chinese Manufacturing PMI posted a reading of 48.1 points in June, 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

Australia continues to suffer from the global slowdown, and weak manufacturing data out of China is bad news for Australia. Recent Australian data, such as employment, has not been impressive. With the turmoil in Europe and increasing concern  about the US recovery, many investors will shy away from the risky aussie. Look for volatility in AUD/USD to continue.Thus, the overall sentiment is  bearish on AUD/USD towards this release.

Technical levels, from top to bottom: 1.0557, 1.0482, 1.0402, 1.0340,  1.0230 and 1.0174.

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 54.0: An unexpected higher reading can send the pair above one resistance line.
3. Well above expectations: Above 54.0: 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:  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: This scenario would indicate  deeper 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.