AUD/USD falls on weaker Chinese PMI data and US dollar strength

AUD/USD falls on weaker Chinese PMI data and US dollar strength

The AUD/USD finished lower last week at 0.6765 (-0.47%), retreating from an eight-month high of 0.6824 as the US dollar gained much-needed support from month-end rebalancing flows, referenced in this article here on Wednesday, and stronger US economic data.

The AUD/USD has faced further pressure at the start of the new week, driven down by disappointing Chinese manufacturing Purchasing Managers' Index (PMI) figures. On Saturday, China’s official National Bureau of Statistics (NBS) manufacturing PMI fell to 49.1 in August from 49.4, marking the fourth consecutive month of contraction and the sharpest decline since February.

Market reaction to Caixin PMI and iron ore prices

The Caixin manufacturing PMI, released today, provided a partial offset as it rose to 50.4 in August, exceeding expectations. However, within the sub-indices, some worrying signs emerged. The cost of production fell for the first time in five months due to lower raw material prices. At the same time, output prices dropped as firms offered discounts to remain competitive.

Providing its assessment of the mixed Chinese PMI data, the price of iron ore, often a good gauge of sentiment towards China data, eased 3.05% lower during trading in Asia today to $97.95 per tonne.

Attention now turns to Wednesday's crucial Australian Q2 gross domestic product (GDP) release, previewed below, which will lead into Friday's pivotal US non-farm payrolls report.

Q2 2024 GDP

Date: Wednesday, 4 September at 11.30am AEST

Australian GDP rose by 0.1% in the March quarter of 2024 from an upwardly revised 0.3% in the prior quarter, for an annual rate of 1.1% year-over-year (YoY). While it was the tenth consecutive rise in quarterly GDP, it was the softest pace of growth in six quarters and compares with an average of 2.4% over the past decade.

For the June quarter, the market is looking for a rise of 0.3% quarter-over-quarter (QoQ), which would see the annual rate ease to 1.0% YoY, fractionally above the Reserve Bank of Australia’s (RBA) forecast of 0.9% YoY. At the start of this week, the Australian interest rate market is pricing in 20 basis points (bp) of RBA rate cuts by year-end and two full 25 bp rate cuts by April 2025.

AU annual GDP rate chart

AUD/USD technical analysis

The AUD/USD remains within a messy multi-month range after testing and rebounding from support level near 0.6350 in early August.

AUD/USD weekly chart

Technically, the AUD/USD needs to see a sustained break above the resistance level at 0.6800/25 to open up a test of the December 0.6871 high before the weekly trend line resistance at 0.6930/40 coming from the 0.8007 high from February 2021.

While the AUD/USD remains below the 0.6800/25 resistance level, rotation lower to the 200-day moving average at 0.6612 is still possible.

AUD/USD daily chart

• _{Source: TradingView. The figures stated are as of 2 September 2024. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation.}