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FOREX NEWS: Australian Manufacturing Down, Aussie Remains Up

Jason Shemtob

THE TAKEAWAY: Australia’s manufacturing levels came in at 40.2, indicating 11 months straight of contraction within the sector > While a negative sign for the economy, Australia’s main role is as an exporter > The Australian dollar remains strong due to risk-on sentiment

The AUD AiG Performance of Manufacturing Index (PMI) for January came in at 40.2 versus December’s rating of 44.3. The indicator is a composite measure of manufacturing activity within Australia. Ratings above a base score of fifty indicate an expansion of manufacturing activity, while ratings below fifty indicate contraction. Today’s release marks the 11th straight month below a rating of fifty, signifying continual troubles within Australia’s manufacturing sector.

The AiG report had little effect on the Australian dollar, which has held strong against its peers due to the risk-on sentiment of investors, who seek the high interest paying currency. Furthermore, as a major exporter of commodities, the Aussie’s movement may be more tied to data related to exports and China’s economic growth, rather than at home manufacturing levels. Since 2010, the PMI appears to have diverged from the AUD/USD, although there seems to be some correlation in movement.

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