Global overview
A sharp drop in China’s Caixin services purchasing manager index (PIM) hit markets across the region yesterday, with the Australian dollar and Japanese yen both leading the losses. The Chinese yuan and Singapore dollar were also weaker.
Chinese PMI miss hits region
Yet another poor reading from the Chinese economy on Tuesday hit sentiment across the globe with Asian FX the hardest hit.
The Aussie, kiwi and Japanese yen all fell to ten-month lows yesterday.
The Chinese Caixin services plunged in August with the index falling from 54.1 to 51.8. The market had forecast 53.6. The weak reading is a sign that ongoing worries in the Chinese property are spreading to consumer activity and adds to pressure coming from weak global manufacturing demand.
Across Asia, key regional currencies were weaker, with the USD/JPY jumping 0.9% to the highest level since November.
The NZD/USD fell 0.9% to also hit ten-month lows.
The Chinese yuan and Singapore dollar were also down sharply. The USD/CNH gained 0.4% while the USD/SGD gained 0.5% with both markets near ten-month highs.
RBA seen on hold
The Australian dollar was also pressured after yesterday’s Reserve Bank of Australia decision saw the central bank keep interest rates on hold at 4.10%.
There’s growing consensus that the RBA is now on hold for the foreseeable future. While there were only small changes to the statement, the RBA indicated the employment market is now less tight, inflation is easing, and China is now of more concern.
As a result, there are no more rate hikes priced in Australian money markets.
The reaction to the RBA decision was initially muted although the Aussie saw heavy selling as European markets opened.
The AUD/USD fell 1.2% as it dropped to the lowest level since 4 November.
Australian GDP due
Australia remains in focus with June-quarter GDP due at 11.30am AEST.
Australian quarterly growth is forecast at 0.3% with the annual rate seen at 1.8%. This compares favorably with major peers (for example, both New Zealand and Germany have fallen into technical recessions this year) although the US continues to outperform with 2.1% annualised growth at its most recent release.
Otherwise, the Bank of Canada meets overnight, with the central bank expected to keep interest rates on hold at 5.00%.
Asian FX hit after China PMI miss
Table: seven-day rolling currency trends and trading ranges
Key global risk events
Calendar: 4 – 8 September
All times AEST
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