Disappointing economic data from China has led to a precipitous drop in the value of the Australian dollar against a basket of other currencies. In a matter of minutes AUD/USD plunged from 0.931 to 0.938 today off the back of China’s HSBC PMI report. The manufacturing survey is conducted on a month by month basic by the private sector and was widely expected by analysts to come in at 51.2, thus signaling expansion in China’s manufacturing industry. The figures, instead came in at 50.2, sending a shockwave through the markets as it was revealed that China is barely breaking even when compared to Augusts results.
Other data from the industrial powerhouse record export orders making a recovery after the typical Aug lull. HSBC, however that this expansion is minute when adjusted against seasonal data. Another hit for the Chinese economy is that domestic orders that give us a clue as to the health of domestic consumption came in below expectations. There has been a small amount of stimulus injected by the Chinese government in order to help bolster demand in the country, but the overarching trend is that many firms are continuing to reduce their workforce.
In addition to all this a newly-introduced anti-corruption initiative is set to make cash controls more rigorous in the country on state owned enterprises. This is likely to have an effect on the figures reported for the health of the Chinese economy going forward, and with much talk of thoroughly massaged figures coming from the country, this may further turn the tide of market sentiment against China, with further detrimental effects for Australia, which remains one of the largest exporters to China.
Nevertheless an expansion is being forecast for China’s GDP in the third quarter of 2013. It is widely expected that the GDP figures will register a rise to 7.6%. Some analysts are expecting that this Q3 blip could be a harbinger of a larger drop in Q4 as tighter policy controls are set in place.
Trades of the day:
AUD/USD is still looking particularly attractive with binary PUT trades making sense at the longer intraday durations. However, the smart money is taking long-term short positions and PUT trades that ride out the rest of 2013.