The Australian Dollar Gains as Mood in China picks up

The Australian Dollar Gains as Mood in China picks up
by, David Frank, Economist

The Australian Dollar, the Forex market’s favorite liquid proxy to China was pretty steady this morning despite weak construction data from The Down Under and a modest pickup in China’s business sentiment.

Today’s business sentiment release, from US based consultant firm MNI, came in at 53.1 for the month of November. This is above the five month low of 52.2 set in October, last month. The weakness in this survey has been led by lower confidence in manufacturing companies. It still remains to be seen how a current US Dollar environment will affect China’s exporting companies who sell in US Dollar and convert to Chinese yuan. A stronger Dollar is better for their bottom line and profit margin.

MNI said that new orders and output both rose on the month thanks to a weaker yuan which boosted sentiment. The consulting firm expects business conditions to hold up as they noted that the component measuring production in China rose to a thirteen month high of 58.0 in the month of November.

The company also said that they expect an increase in activity levels to increase if not remain strong over the next quarter (three months). The MNI survey has existed since 2007 and provides investors with an early look into business and manufacturing sentiment in the world’s second largest economy.

The Australian Dollar Shrugs Data Off

The AUD/USD Forex market was unfazed by the MNI release and a weaker-than-expected construction data release in Australia. The bulls seems to keep the upper hand after wrestling with the bears over the last couple weeks thanks to the so called Trump trade weakened the Aussie Dollar. The Aussie Dollar was at 0.74236 after the data release and 0.7422 before the data crossed the wires.

The Aussie comeback was still in play even though some pretty sad official data came out in the construction sector. The value of construction work, in The Down Under, fell 4.9 percent in the third quarter (Q3). This was way worse than the expected 1.6 percent fall. He markets saw this number fall by 3.1 percent in the second quarter and expected it to moderate a bit.

The one bright spot in today’s construction data came from residential building which rose 6.3 percent quarter to quarter. This data is released by the Australian Bureau of Statistics. However, engineering and construction fell off a whopping 23.2 percent.

The Aussie Dollar has endured a volatile few weeks of sessions. It hit a five month low against the Dollar on Monday thanks to investors trading in the so called Trump affect into their Forex portfolios. Since then, the Australian Dollar has shown some strength as the global financial markets are digesting a post-US election volatility and coming to grips that a Trump presidency might not be as bad as originally feared. He still raises concerns with his protectionism and America first policy but the global markets are being buoyed by his fiscal spending plans. This is seeing an increase in materials (mining stocks) as well as local construction plays.

 

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