AUD/USD forms bullish pennant on upbeat Australia and China manufacturing PMI

AUD/USD forms bullish pennant on upbeat Australia and China manufacturing PMI
  • The AUD/USD was little changed after upbeat manufacturing PMI data from China and Australia.
  • Data from Markit and AIG showed that Australia's manufacturing PMI rose to 51.5 and 51.2 respectively.
  • The Chinese PMI from Caixin rose to 51.2 from the previous 50.7.

The AUD/USD pair was little changed during the Asian session as traders reacted to the upbeat manufacturing PMI data from Australia and China. The pair is trading at 0.6900, which is higher than yesterday’s low of 0.6835.

AUD/USD
AUD/USD little changed after upbeat manufacturing data

Australia manufacturing makes a comeback

The Australian manufacturing sector made some positive strides in July as the country continued to reopen. That is according to the latest manufacturing PMI numbers from the Australian Industry Group (AIG) and Markit.

According to Markit, the manufacturing PMI rose from the previous 41.6 to 51.6 in June. A PMI reading above 50 is an indication that the sector is growing. Analysts polled by Reuters were expecting the PMI to be 49.8.

In a statement, Markit and Commonwealth Bank said that easing of travel and business activity had a positive result to the sector. Still, the industry is facing some of the challenges it faced in May. For example, production volumes and sales declined during the month. Similarly, their purchasing activity and input inventories declined while stocks of finished goods also declined. Also, prices of inputs rose, with companies passing these costs to customers.

On a positive side, business sentiment rose to a 16-month high while downturn in sales eased considerably.

Meanwhile, the manufacturing PMI from AIG rose by 9.9 points to 51.5 points. That was the fastest pace of expansion since the year started. The report said:

“Almost all of the improvement in June was concentrated in the large food and beverages sector. Food and beverage manufacturers said new orders from food wholesale distributors are improving, as trading restrictions are relaxed.”

China manufacturing PMI improves

China is Australia’s biggest trading partner. It buys most of the country’s goods, which include iron ore, copper, and coal. Also, the country is the biggest buyer of Australia’s services. Therefore, the AUD/USD pair tends to react to the country’s PMIs and other numbers.

According to Markit and Caixin, the Chinese manufacturing PMI rose from 50.7 to 51.2. As such, June was the second straight month of expansion in the country’s activity. The report said that manufacturers had increased their production for the fourth straight month.

Employment in the manufacturing sector was soft while new orders and average input prices increased for the first time in four months. Similarly, their confidence also rose. In a statement Wang Zhe, Chief Economist at Caixin said:

“The Caixin China General Manufacturing PMI stood at 51.2 in June, the highest reading so far this year. The manufacturing sector continued to expand, as most of the country had the epidemic under control and the economy continued to recover.”

This data came a few days after the Chinese statistics office released upbeat industrial profits. The numbers showed that profits in the sector rose by 6% to $82 billion, which is a sign of significant improvements.

AUD/USD technical analysis

AUD/USD
AUD/USD technical analysis

The AUD/USD pair is trading at 0.6900. On the daily chart, this price is above the 50-day and 100-day exponential moving averages (EMA). Also, the price is forming a bullish pennant pattern, which is usually a bullish extension pattern. Therefore, the pair is likely to breakout higher in the coming days. Perhaps, this will happen tomorrow when traders will react to the US nonfarm employment data.

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 Investing.com. 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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