Australian Dollar, Japanese Yen Look Past Soft Chinese PMI Data

Talking points

• HSBC ChinaManufacturing PMI 48.1 in March vs. 48.7 Expected
• Yen Continued to Trade Lower as the Data Failed to Hurt Sentiment
• Aussie Dollar Spiked Lower But Quickly Recovered After PMI Data

The Australian Dollar spiked briefly lower only to swiftly erase losses against the Japanese Yen after a disappointing set of China manufacturing figures. The HSBC China Manufacturing PMI gauge came in at 48.1 in March compared to a Bloomberg survey estimate of 48.7 and a print at 48.5 in February. The release marks the third consecutive month of contraction in the factory sector.HSBC economist Hongbin Qu said the result “suggests China’s growth momentum continued to slow down, with weakness broadly-based and domestic demand softening further.”

The Aussie’s resilience in the face of disappointing Chinese economic data likely reflects its relatively limited implications for near-term RBA monetary policy expectations. While a slowdown in China may hurt growth in Australia, which counts on the East Asian giant as its largest trading partner, the RBA’s recent preference for “a period of stability in the policy rates” hints this might not translate into easing, and thereby into currency depreciation. For its part, the Yen had been trading lower amid a recovery in risk appetite and continued to do so after the Chinese data crossed the wires.

AUDJPY (5min chart) – March 23, 2014Created with FXCM Marketscope