Written by Steven Dooley, Head of Market Insights, and Shier Lee Lim, Lead FX and Macro Strategist
AUD boosted by China data
The Australian dollar was stronger overnight, back near the highest level for 2024, after a better-than-expected reading from the Chinese manufacturing sector.
The closely-watched Caixin manufacturing PMI number was reported at 50.4 (versus expectations for 50.0) as the index moved back above the 50.0 level in a sign of expansion in the Chinese manufacturing sector.
The AUD/USD gained 0.4% as it returned to levels close to the year-to-date highs. The Aussie climbed in most other markets.
The AUD was also focused on some mixed component data ahead of Wednesday’s June-quarter GDP numbers. Today, net export figures are due at 11.30am AEST.
Otherwise, markets were more muted, with US markets closed for their Labor Day holiday.
The NZD/USD drifted lower, down 0.3%, with the kiwi lower in other key markets.
The USD/CNH staged a recovery, with the pair up 0.4% as it rebounded strongly from 15-month lows. The USD/SGD was flat.
Downward shift in yields impacting greenback
The greenback will be back in focus tonight as US markets return from the Labor Day long weekend with a key manufacturing reading due at midnight (AEST).
We anticipate that ISM manufacturing continued to be in contractionary zone in August, maybe increasing slightly to 48.2 from 46.8. After falling to its lowest point since June 2020, the employment index most likely increased in August.
August’s Fed manufacturing surveys, both national and regional, fell short of the expansion/contraction thresholds.
The USD index, still broadly near 13-month lows, has been impacted by downward shift in US yields – the next few weeks will likely be dominated by the lead-up to the Federal Reserve decision on 19 September (APAC time).
Won caution despite USD/KRW decline
The Korean won has benefited from the weakening US dollar in line with other APAC FX markets, but for the KRW, the strength might be short lived. Looking forward, we anticipate that inflation will drop to 2.2% y-o-y in August from 2.6% in July.
Nonetheless, given the persistent pricing patterns, we anticipate that core inflation will stay constant in August at 2.2% y-o-y.
Prices of tourism-related goods, such as hotels, probably increased inflationary pressures, partially offsetting supply-side disinflationary forces, as food price inflation remained high.
We think that despite a modest rebound in domestic demand, disinflationary forces are likely to persist, which validates the BOK’s increased confidence in price stability.
We continue to be cautious on the Korean won despite the decline in USD/KRW because of (a) the continuous domestic purchase of USD and (b) the movement’s rapidity that suggests moment is stretched.
Aussie back near 2024 highs
Table: seven-day rolling currency trends and trading ranges
Key global risk events
Calendar: 2 – 6 September
All times AEST
*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
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