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Australian Dollar, AUD/USD, Iron Ore, China, PMI – Talking Points
- AUD/USD strengthens and iron ore prices lower
- China’s manufacturing PMI data assesses China’s economy
- AUD/USD is approaching a trend line, which could provide the basis for a recovery
Thursday’s Asia-Pacific Outlook
The Australian dollar weakened overnight against a broadly stronger U.S. dollar after a mixed session in New York. Speaking at a central bankers forum in Portugal, Federal Reserve Chairman Jerome Powell expressed doubts about the economy returning to pre-coronavirus normalcy, saying: “We don’t know if we’re going to go back to looking like Like or a little bit like what we were in before.” ECB President Christine Lagarde was more confident in the assessment, saying: “I don’t think we’re going back . . .”
The overall signal from central banks is that they are willing to sacrifice economic growth if it means suppressing inflation. Market-based inflation measures such as breakeven rates plummeted overnight. The U.S. two-year breakeven ratio — a measure of inflation two years later — fell to 3.45 percent, the lowest level since Feb. 11. That weighed on gold prices, with XAU falling for the third straight session.
The sharp drop in Chinese iron ore prices is a worrying headwind for the Aussie, although prices have only shown a modest reaction given the nearly 5% drop over the past 24 hours. The move comes as a bit of a surprise given that China has eased restrictions. One concern is that imports could fall behind levels seen earlier this year, as policymakers appear to be leaning toward a slow-and-steady approach to stimulus.
However, economic data from China may provide a respite. China’s National Bureau of Statistics (NBS) will release the Purchasing Managers’ Index (PMI) at 01:30 GMT. Analysts expect the figure to surpass 50.5, which will push the index out of contraction and into expansion. A better-than-expected print could see iron ore and the Australian dollar soar.
Notable Events for June 30:
- New Zealand – ANZ Business Confidence Index (JUN)
- Philippines – Producer Price Index (MAI)
- Australia – Private Sector Lending (May)
- Japan – Housing Starts (May)
AUD/USD Technical Forecast
AUD/USD fell overnight for the third day in a row, bringing the price closer to the trendline of the October 2021 swing high. This trend line may support an eventual recovery. In this case, the descending 20-day simple moving average (SMA) comes into play as potential resistance. Meanwhile, the MACD oscillator appears to be preparing to cross above its signal line.
AUD/USD Daily Chart
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