HSBC PMI suggest that Chinese manufacturing sector is continuing to expand, a 4 month streak since last November. However the pace of growth has slowed down tremendously. Feb’s preliminary (Flash) reading came in at 50.4, vs consensus estimate of 52.2 and 52.3 previous. Domestic demand in China remained strong, continuing the trend that we have seen in previous months, definitely delighting the Chinese Government that wishes to strengthen Yuan without jeopardizing domestic demand too severely. The stability of demand is a good sign for exporters to China such as Australia and New Zeland, who will be able to see their respective exports picking up in 2013.
Traders of AUD/USD reacted badly on the headline figure that missed expectations. However, AUD/USD was already gapping lower below 1.03 from last Friday’s close, and it should be noted that traders and speculators could be simply looking for any reason to sell. Price has since moved slightly higher towards 1.028 after finding support just above 1.026. Depending on how traders digest the finer prints of the PMI, prices could still rally towards 1.03 due to reasons explained above. However that may be unlikely as traders appear to give more weight to the headline figure, with Australian benchmark index ASX declining from its intraday high after the Chinese news.
From the weekly chart, price action is threatening a bearish breakout below 1.03. However traders may wish to take caution from early entries as price has thrice failed to close below 1.03 for 3 consecutive weeks. Stochastic readings appear to be forming a trough with Stoch/Signal closing into each other, which diminishes the bearishness price is showing us, though there remains possibility of further downsides even on the Stochastic indicator with trough back in Jun 2012 much lower than current levels. However, if we were to compare current readings to the trough back in Oct 2012, the divergence between readings and price levels actually provide us a bullish signal as it suggest that sell-off in the past weeks have been much more aggressive than before.
Fundamentally, RBA is not looking as dovish as before with Governor Stevens suggesting that AUD levels are too high, yet at the same time suggesting that levels are not strong enough for intervention. As such, the long-term case for AUD/USD is less bearish as before, and a return higher is certainly not out of the equation.