THE TAKEWAY: Chinese manufacturing PMI declined to 50.1 from 50.2 in June > Production slowed, event risk ahead > Australian Dollar declined
The Australian Dollar lost ground to the U.S. Dollar as Chinese manufacturing PMI narrowly missed expectations registering at 50.1 in June, down from 50.2 the prior month. Any reading above 50 indicates growth for the manufacturing industry. Production has been experiencing a continual slowing in growth since April when the index peaked at 52.
A slowing Chinese production sector typically does not bode well for a healthier Australian economy as China is a large importer of Aussie resources.
Furthermore, the Australian Dollar has a tendency to derive a portion of its demand from a risk-on trading environment. The Aussie is one of the highest yielding currencies to pair against and is sensitive to RBA interest rate changes. An increase in interest rates may prove attractive for investors to hold, whereas a reduction in rates may lose its appeal. Currently, markets appear to be pricing in a 22 percent chance of a 25 basis point rate cut by the RBA on August 7. Moreover, The FOMC will announce its interest rate policy later today and the ECB will announce its interest rate policy tomorrow. Each event has the potential to either spark risk-appetite or fuel risk-aversion.
AUD/USD, 1 Minute Chart