AUD price, Chinese data and analysis:
- Both official and unofficial Chinese PMIs came in weaker than expected.
- That’s bad news for the Australian Dollar, which is widely seen as a proxy for the Chinese economy.
Australian Dollar out of favor
The Australian Dollar, which is seen by traders as a proxy for the Chinese economy, is looking weak again after disappointing Chinese purchasing managers’ indexes. As the DailyFX calendar shows, China’s manufacturing PMI came in at 50.1 in April rather than the unchanged 50.5 predicted by economists.
The unofficial Caixin PMI for the Chinese manufacturing sector also missed expectations, printing at 50.2 rather than 50.9, with both surveys pointing to manufacturing in China only just above the 50 level that separates expansion from contraction.
Moreover, the official PMI for non-manufacturing sectors in April missed forecasts too, at 54.3 rather than the 54.9 predicted. Together, the numbers sent AUDUSD lower after its small recovery over the previous few trading sessions.
AUDUSD Price Chart, Daily Timeframe (January 29 – April 30, 2019)
Chart by IG (You can click on it for a larger image)
“In general, China’s economy showed good resilience in April, yet it stabilized on a weak foundation and is not coming to an upward turning point. The Politburo meeting signaled that in the first quarter of this year China had adjusted its countercyclical policy marginally. As pressure on the economy remains in the second quarter, we expect that there will be minor adjustments to the policy but not a turnaround,” commented Zhengsheng Zhong, Director of Macroeconomic Analysis at CEBM Group.
For AUDUSD, which wilted in Asian trading, the data suggest that its slide that began two weeks ago could be set to resume, with the 0.70 “round number” and the 0.6988 low recorded on April 25 now possible targets.
AUDUSD positioning data
As for market confidence, IG Client Sentiment data for retail traders show 69.6% of traders are net-long, with the ratio of traders long to short at 2.29 to 1. In fact, traders have remained net-long since April 18, when AUDUSD traded near 0.71504; the price has moved 1.4% lower since then. The number of traders net-long is 1.7% lower than yesterday but 34.3% higher than last week, while the number of traders net-short is 12.3% higher than yesterday but 26.1% lower than last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests AUDUSD prices may continue to fall. Positioning is less net-long than yesterday but more net-long from last week. The combination of current sentiment and recent changes gives us no clear AUDUSD trading bias.
Looking further ahead, the next key event for the Australian Dollar will be the Reserve Bank of Australia’s interest rate decision on May 7. A rate cut is widely expected in the next few months but next week seems too early, although traders should watch out for the RBA Governor preparing the ground then for a later reduction.
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— Written by Martin Essex, Analyst and Editor
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