AUD/USD: On the back foot amid broad risk-off, China PMI in focus ahead of US NFP

• AUD/USD fails to cheer USD weakness as trade worries, downbeat China data questions Aussie buyers.
• Australia’s AIG Performance of Manufacturing Index and CBA/Markit Manufacturing PMI flash sluggish data.
• AU PPI and China’s Caixin PMI are nearby to follow.

Unlike other Antipodeans, AUD/USD fails to cheer the greenback weakness as broad risk-off pulls the quote back from fresh three-month high to 0.6892 by the press time of early Friday morning in Asia.

Even if the third consecutive rate cut by the United States (US) Federal Reserve (Fed) helped the Aussie to initially rise towards fresh high since late-July, prices dropped amid increasing odds of a fresh trade war between the US and China. Recently worsening the risk sentiment could be North Korea’s other test-firing of arms. Adding to the pair’s weakness was the global run for easy money policy and China’s sluggish activity numbers.

The US-China trade sentiment faded with the Chinese diplomats doubting any strong ties with the Trump administration beyond the phase one deal.

Due to this, the US 10-year Treasury yields dropped a whopping seven basis points to 1.68% while Wall Street also witnessed negative impact of trade worries.

On the data front, Australia’s strong Building Permits fail to conquer the downbeat official Purchasing Managers Index (PMI) data from China. The latest AiG Manufacturing Performance Index and Commonwealth Bank (CBA)/Markit Manufacturing PMI for October fails to restore investor confidence while lagging the priors of 54.7 and 50.1 to 51.6 and 50.0 respectively.

Markets are now gearing up for Australia’s (AU) third quarter (Q3) Producer Price Index (PPI) ahead of China’s Caixin Manufacturing PMI. While AU PPI is expected to weaken to 0.3% from 0.4% on QoQ, Chinese private manufacturing activity gauge may also drop to 51.0 from 51.4.

“We look for the Caixin manufacturing PMI to remain at 51.4 in October, unchanged from the previous month. This index is composed of mainly small to medium-sized companies and those that are more export-orientated. As such these companies will benefit from targeted easing measures, easing liquidity conditions and hopes of signing of the "Phase 1" trade deal between the US and China,” says TD Securities. On the other hand, Westpac says, “Westpac confirms its forecast which was “refreshed” on July 24 that the Board would cut the rate by 25 basis points at the October meeting (done) and the February meeting in 2020. Markets are pricing in a probability of a minuscule 4% for a November move.”

After the AU/China data, investors will keep eyes on the US monthly employment numbers in order to ascertain the chances of any pullback in the greenback.

Technical Analysis

Pair’s failure to rise much past-July 10 low of 0.6910, coupled with overbought conditions of 14-bar Relative Strength Index (RSI) triggers the pullback. However, a two-week-old rising trend line around 0.6850 seems to be the key for sellers to watch.