The Australian dollar is weaker as Chinese economic data comes up short

(Photo by VCG/VCG via Getty Images)
  • The Australian dollar fell against all of the major crosses on Tuesday.
  • Soft Chinese PMI reports for April was a major factor behind the Aussie’s weakness.
  • The US dollar softened again of the Fed’s interest rate decision that will arrive later Wednesday. Stronger Eurozone data also helped to boost the euro, contributing to the slide in the greenback.
  • China, Japan and most of continental Europe will be offline for Labour Day holidays.

The Australian dollar fell against all the major crosses on Tuesday, undermined by the release of disappointing Chinese PMI data during the session.

The weakness came despite renewed softness in the US dollar ahead of the Federal Reserve’s interest rate decision that will arrive later in today’s session.

Here’s the scoreboard at 7am in Sydney on Wednesday.

AUD/USD 0.7050 , -0.0005 , -0.07%
AUD/JPY 78.56 , -0.19 , -0.24%
AUD/CNH 4.7488 , -0.0051 , -0.11%
AUD/EUR 0.6286 , -0.002 , -0.32%
AUD/GBP 0.5407 , -0.0046 , -0.84%
AUD/NZD 1.0554 , -0.0022 , -0.21%
AUD/CAD 0.9441 , -0.0052 , -0.55%

The chief catalyst for the Aussie’s weakness was the release of Chinese manufacturing and non-manufacturing PMIs for April which eased lower after a strong lift in March.

While both readings remain above the levels seen earlier this year, the modest reversal cast renewed doubt over the prospects for a sustained improvement in the Chinese economy in the months ahead, weighing on the Aussie as a result of the strong economic ties between the two nations.

The AUD/USD lost around 40 pips following the release of the data before stabilising in the latter parts of the session as the US dollar softened.

Adjustments to positioning ahead of the Federal Reserve’s interest rate decision that will arrive in the early hours of Thursday morning on Australia’s east coast was one factor behind the greenback’s weakness, as was the release of firmer economic data from the Eurozone that helped to support the euro

Investing.comAUD/USD Hourly Chart

Against the crosses, the Aussie tumbled against the British pound, losing close to 1% from where it began the session.

“On the Brexit front, news reports suggest there is one last push on talks between the government and Labour Party to come to some form of agreement on Brexit,” said Rodrigo Catril, Senior FX Strategist at the National Australia Bank.

“Another factor helping GBP has come from EUR strength following better than expected economic data releases. The euro-area economic data were universally better than expected.”

Turning to the day ahead, it promises to be a quiet first half of the session with both Japan and Chinese markets offline for public holidays for the remainder of the week.

On the data front, the Ai Group’s manufacturing PMI for April and CoreLogic’s latest Home Value Index, also for April, will be released during the session. Neither are likely to shift the dial for the Aussie dollar.

Regionally, New Zealand Q1 unemployment data will be released at 8.45am AEST, providing a catalyst that may create short-term volatility in the New Zealand dollar.

Japanese manufacturing PMI and South Korean trade data will also arrive during the session.

Later in the day, most attention will be on the US Fed’s monetary policy decision. With no change in policy rates expected, all interest will likely be on the post-meeting statement and press conference with Chair Jerome Powell.

“We expect forward guidance to still point at rates being on hold for some time with the Committee remaining patient as it carefully monitors data releases over coming months,” said Catril at the NAB.

Before that event arrives at 4am AEST, markets will also receive manufacturing PMI reports from the UK and Canada along with ADP private sector payrolls, construction spending, EIA crude oil inventories and the ISM manufacturing PMI from the United States.

Along with China and Japan, most of continental Europe will also be off for Labour Day holiday.

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