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China Caixin Manufacturing PMI overview

China’s Caixin Manufacturing PMI will be dropping early on Wednesday at 01:45 GMT, and the headline reading of manufacturer’s activity and costs expectations is expected to drift down slightly, from 51.0 to 50.8, as China’s economy begins to grapple more earnestly with a potential slowdown. CHina’s official PMI reading recently missed expectations as well, and as analysts at Nomura noted: “We remain cautious on calling a growth rebound for the following reasons: 1) the starting and implementation of new projects takes time, especially as local governments still face a credit squeeze; 2) the pledged supplementary lending (PSL) and cash settlement of the shanty town renovation program are not sustainable, in our view; 3) it takes time to unwind some of the previously implemented deleveraging measures; and 4) already high yields of Chinese corporate onshore and offshore high-yield dollar bonds have made bond financing much more difficult for LGFVs and enterprises.”

How could it affect the AUD/USD?

With China’s official reading missing forecasts, expectations for the Caixin PMI are low, but a worse-than-expected contraction in the printing could see the Aussie take a step down on fear of a worsening slowdown for China’s economy, while a positive reading will see the AUD take a step higher as bulls capitalize on a signal that things are still looking hunky-dory for Australia’s closest trading partner.  

The Aussie maanged to catch a quick bullish clip higher yesterday on positive Aussie data, but the AUD/USD remains stuck in middling territory between key swing points, and as noted by FXStreet’s Valeria Bednarik, “the short-term picture for the pair is barely positive, as the price remains within familiar levels, but at least at the time being is advancing above a congestion of moving averages, while technical indicators lost upward strength, the Momentum already heading lower and the RSI flat at around 61.”

Support levels: 0.7370 0.7330 0.7300      

Resistance levels: 0.7445 0.7490 0.7520  

Key notes

AUD/USD analysis: bulls trying again to break the range

China: Official PMI fell further in July – Nomura

About the China Caixin Manufacturing PMI

The Caixin China Manufacturing PMIâ„¢ is based on data compiled from monthly replies to questionnaires sent to purchasing executives in over 400 private manufacturing sector companies.