AUD/USD retreats as Chinese manufacturing PMI enters zone of contraction

Australian dollar retreated against its US counterpart on Thursday, following a report which showed the preliminary reading of manufacturing Purchasing Managers Index (PMI) for China fell below the key level of 50.0 in January, separating contraction from expansion.

AUD/USD fell to a session low at 0.8788 at 4:00 GMT, after which consolidation followed at 0.8802, down 0.56% for the day. Support was likely to be found at January 21st low, 0.8776, while resistance was to be encountered at January 22nd high, 0.8888.

According to a report by HSBC Holdings Plc and Markit Economics, the preliminary reading of Chinas manufacturing PMI came in at 49.6 in January, down from a final reading of 50.5 recorded in December. Experts had anticipated that the index will slow down at a lesser pace this month to reach 50.3. Manufacturing activity in the country contracted for the first time in the past six months, which put additional pressure on worlds second largest economy. This data influenced the Aussie, as China is Australias largest export partner.

“The Aussie is more likely to fall,” said Hideki Shibata, a senior interest-rate and currencies strategist at Tokai Tokyo Research Center Co., cited by Bloomberg. “China’s growth outlook is posing a risk to countries like Australia that rely on trade with the nation.”

Chinese Gross Domestic Product will probably slow down its pace to 7.6% in the first quarter of the year, from 7.7% in the final quarter of 2013, a survey by the same media revealed.

The above mentioned report came out a day after the Australian Bureau of Statistics said the index of consumer prices in the country rose more than initially projected during the fourth quarter of 2013, which lessened the probability that Reserve Bank of Australia may introduce a new cut in borrowing costs in the future. The CPI rose 0.8% in Q4 compared to Q3, while the annualized consumer inflation reached 2.7% in Q4. Preliminary estimates pointed that the index will climb 0.4% on a quarterly basis and 2.4% on annual basis. Figures confirmed that the annualized inflation remained in central bank’s inflation target range between 2% and 3%.

In addition, traders saw a 78% probability that the Reserve Bank of Australia will maintain its benchmark interest rate at the current all-time low level of 2.50% until the policy meeting in June. The odds of such a move were 54% at the end of last week.

The yield on Australian benchmark three-year notes dropped two basis points, or 0.02 percentage point, to reach 2.98%, after gaining 13 basis points on Wednesday, or the largest advance since October 1st.

Also on Thursday, the Melbourne Institute said that consumer inflationary expectations, an indicator reflecting the change in consumer prices in Australia during the upcoming twelve months, increased to 2.3% in January, while a month ago it pointed to a level of 2.1%. This result came in consonance with the official report on inflation released yesterday.

Meanwhile, later in the day the Bureau of Labor Statistics in the United States is expected to publish its weekly report on initial jobless claims, an indicator for lay-offs in the country. Experts projections show an increase in claims by 4 000 to 332 000 during the week ending on January 18th.

At 15:00 GMT the National Association of Realtors (NAR) will announce the number of existing home sales in the United States. Preliminary estimates point that sales probably increased 1.0% to the annualized 4.93 million units in December, while in November the indicator reached 4.90 million units. Better than expected figures will certainly heighten the appeal of the US dollar.

Elsewhere, the Australian currency was losing ground against the euro, with EUR/AUD cross surging 0.97% on a daily basis to trade at 1.5456 at 7:57 GMT. AUD/NZD pair was falling 0.35% to trade at 1.0621 at 7:58 GMT.