THE TAKEAWAY: AU PMI increased by 5.4 points in February (MoM) > Future of Aussie remains tied to risk sentiment and the upcoming RBA meeting > Aussie Outlook Neutral
Australia’s AiG Performance of Manufacturing Index for February came in at 45.6, above January’s rating of 40.2. Although a month over month increase in manufacturing activity, February’s index level marks the 12th straight month of a rating below the threshold of 50, indicating continual contraction within Australia’s manufacturing sector. The Aussie showed little reaction to the PMI data release, with the AUD/USD trading at 1.02113 as of this report.
The continual weakness of Australian manufacturing does not appear to have put significant downward pressure on the value of the Australian dollar, which has diverged away from PMI levels. Rather, the Aussie has appeared to be more linked to the general risk sentiment of forex markets, which has been favoring high yielding currencies. The Australian dollar may be in store for a fall, however, given recent comments by the Reserve Bank of Australia (RBA), claiming that the Aussie appears overvalued. Forex traders should look out for the RBA’s next rate decision on March 5th. Currently, based on the Credit Suisse Global Overnight Index Swap Directory, the market anticipates a 19% chance of a 25BP rate cut during this meeting. A rate cut would likely lead to a fall in the Aussie’s value over fears of future inflation.
What is a Currency War? Who is engaging in one right now? How is it impacting your trading? Take our free course and find out!
AUD/USD (2 Hour Chart)
Created by Jason Shemtob using Marketscope 2.0