Australia dollar falls after surprising March manufacturing PMI data

Australia dollar falls after surprising March manufacturing PMI data
  • Australia dollar declined after the manufacturing PMI rose to 53.7 in a surprising move.
  • Another report showed that Chinese manufacturing sector rebounded in March as companies reopened.
  • The data came two days after Australia launched an aggressive stimulua package

Australia upbeat manufacturing PMI

The Australia dollar falls after the Australian Industry Group (AIG) released upbeat manufacturing data. The number showed that the country’s manufacturing sector had an excellent month due to internal demand as more Australians stockpiled.

According to AIG, Australia’s manufacturing PMI for March rose to a seasonally-adjusted level of 53.9. This was 9.4 points higher than where it was in February and the highest it has been since September last year.

In the statement, the group said that the surge in demand rose as more people moved to buy excess household items like toilet papers, personal care items, and cleaning products ahead of a likely lockdown. This happened as more countries, including China and the UK, announced significant lockdown as the Coronavirus spread.

Therefore, the Australia dollar could have dropped because the gains in the sector were temporary. Additionally, the manufacturing sector forms a small part of the Australian economy. According to estimates, the sector represents just 5% of the entire GDP while services dominate the rest.

China upbeat manufacturing sector

Meanwhile, the market reacted to a new private survey data that showed an upbeat manufacturing activity in China. The survey, conducted by Caixin and Markit showed that the Chinese manufacturing PMI rose to 50.1 in March from the previous 40.3. The decline in February was the worst performance in history.

According to Markit, the excellent report happened as Chinese manufacturers reopened following the Lunar new year. Also, it increased as more companies resumed operations following the closures associated with Coronavirus. According to Markit;

Firms remained upbeat that production would increase over the next year, however, as a number of manufacturers expect demand to recover once the COVID-19 outbreak subsides

This data came a day after another report by China Logistics Information Centre (CLIC) showed that the country’s manufacturing PMI rose to 52.0 from the previous 35.7. Investors take the numbers from CLIC with a grain of salt because the group is linked to the Communist part of China.

China important to the Australian economy

China is one of the most important Australia’s trading partners. Australia exports about a third of its goods to China. Some of these goods include minerals like copper, iron ore and coal. Meanwhile, the country’s benefits from a successful China because most Chinese spend their money in Australia. For example, one in five foreign students in Australia is from China. The Chinese are also significant buyers of Australia’s property. Therefore, investors watch Australia closely as they gauge the performance of China.

Australia government stimulus

The upbeat Australia manufacturing PMI data came two days after the Australian government unveiled its biggest stimulus package ever. The government will spend more than $130 billion to help firms decimated by the Coronavirus illness. The funds will also go directly to people who have been hurt because of the disease. This will see the country’s debt rise to more than $500 billion, according to a study published by ABC.

AUD/USD forecast

Australia dollar forecast

The AUD/USD pair declined after the better-than-expected manufacturing PMI data from the country and China. Looking at the hourly chart, the Australia dollar pair has been forming an ascending triangle pattern, which appears to be reaching its tip. This is confirmed by low volatility shown by the Average True Range (ATR) and the double exponential moving averages, which are along the price. Therefore, you can expect a major breakout, which could come in response to US jobs numbers.

By Crispus Nyaga
Crispus Nyaga is a finance analyst and trader with more than 7 years industry experience. He's contributed to some of the leading financial brands in the world including Seeking Alpha, MarketWatch, Forbes, and Crispus has an excellent understanding of global macroeconomic and geopolitical issues, is a big fan of golf, and lives in Nairobi with his wife, son, and nephew.
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