Matt Simpson, CFTe, MSTA
CityIndex
With an expectation of 51.2, today's release makes it the 4th consecutive rise, the 2nd above 50 and at an 18-month high.
The positive data was embraced by AUD bulls to see it continue on from the bullish sentiment achieved over the previous 2 sessions. The A$ closed at a 3-week high yesterday on the back of y/y inflation hitting 3% with today's Flash PMI adding extra fuel to the fire.
The data set itself is a relief for many as it shows the stimulus is effecting. If we look at the data within the overall PMI number we can also see the majority of it is increasing and at a faster rate to provide extra confidence of this trend continuing.
However this is where it gets interesting. Yesterday the A$ had a daily range of 86 from domestic data, yet today's news from China has only seen a +36 pip range. If we go back a couple of months we would have expected more movement from China news and less domestically - so this pattern has switched this time around. It also suggests that bulls willing to commit to A$ long positions are thinning out which seriously raises the potential for a correction.
Tonight we have US employment and Flash PMI, so positive data here cold well see A$ begin to top out and retrace back towards 0.943. However due to the positive sentiment and news I do not see A$ going back to 94c this week, albeit any severe rise in geopolitical tensions.
Immediately following the release money continued to flow into AUD and NZD began to retreat from the lows it had achieved following today's 'dovish rate hike'. The chart below shows the Aussie against AUD, JPY and NZD. In particular interest is AUDNZD which gapped up to suggest a 'breakaway gap' and potential trend continuation, currently sitting at 6-week highs.
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