30.04.2019 10:27 AM
AUD / USD: China disappointed but Aussie can buy

China disappointed today. During the Asian session in China, the PMI business index in the manufacturing industry was published based on a calculation by Caixin specialists. Contrary to optimistic forecasts, the indicator fell to 50.2 points but did not reach its previous value of 50.8 points. Official figures turned out to be even weaker. The PMI indicator in the manufacturing industry dropped to 50.1 points as calculated by the public service, which also disappointed most experts with an expected minimum growth to 50.5 points. The composite index of business activity fell to 53.4 points, showing a general decline.

In other words, both official and unofficial indicators of activity in the manufacturing industry came close to the 50 mark, which is the limit of expansion and resulted to contraction of business activity in this area accordingly. Although the indicators are still above the key level, the trend itself raises concerns.

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However, the reaction to this release was of a short-term nature. Due to weak China during the Asian session, anti-risk sentiment increased in the foreign exchange market. On this wave, the dollar rose while both the yen and gold strengthened slightly. Yet, the Australian, New Zealander and the Canadian showed a negative trend. However, there is no panic about Chinese data in the market. Therefore, we can assume that traders have already won back this fundamental factor with high probability. This "transience" of an important release is due to several reasons.

First, China recently published positive macro statistics mostly. Therefore, a small deviation of the PMI indicator from forecasts looks like the exception rather than the rule. Let me remind you that China's GDP in the first quarter of this year grew by 6.4%. This indicator by one-tenth of a percent exceeded the expectations of most analysts, although, in fact, the indicator remained at the level of the fourth quarter of last year. In addition, the volume of industrial production in China jumped at an annualized rate immediately by 8.5%, while experts predicted an increase in the rate of only 5.9%. Retail sales in China also turned out to be better than expected and jumped by 8.7% in March, exceeding the forecast level. In addition, exports increased significantly in March in dollar terms, it increased by 14% after a significant decrease of 20% in the previous month. In addition, the volume of bank lending has increased significantly. Last month, this figure doubled compared with the previous period, reaching almost 1.7 trillion yuan or 251 billion dollars.

In other words, the market estimates not individual indicators but in general tendency in general. Although, they certainly have an impact in the short-term period. For example, the Chinese indicators fell "on all fronts" last year but did not reach significantly the forecast levels. In light of these trends, the financial world was concerned about the slowdown in the global economy, after which, anti-risk sentiment has been in the foreign exchange market for several months. Today's release did not cause such consequences. Therefore, traders switched to the current macro statistics at the start of the European session in anticipation of the Fed meeting and the publication of Nonfarm.

This situation can be used when trading AUD/USD pair. In response to the release of Chinese data, Aussie dropped to 0.7040, thereby approaching a strong support level of 0.7000. This target is "not too tough" for the bears of the pair. For the past one and a half years, they have been trying to gain a foothold below this target but to no avail. Even a significant slowdown in Australian inflation and rumors about a possible reduction in the interest rate of the RBA did not break the psychologically important level. After a short-term decline in the 69th figure, the pair returned to their previous positions. Therefore, today's data will not be able to give the pair a downward impulse. This means that a corrective pullback will soon follow, which can be "caught" with the help of long positions.

It is also worth noting that the Australian dollar now enjoys the background support of the commodity market. In particular, the cost of iron ore increased again. At the moment, a ton of raw materials is estimated at $95 compared to the figure around $85 at the end of March and $75 at the beginning of the year. The accident at the Mina Feijao iron mine, owned by the largest mining company Vale in Brazil, occurred at the beginning of the year, which still has an impact on the iron ore market. Despite some restoration of capacity, the overall demand in the market does not exceed the supply and this fact pushes prices up.

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Thus, from the current position or when approaching the key support level of 0.7000, we can consider longs with a target reference of 0.7090 with Tenkan-sen and Kijun-sen lines coincide at this price point. The next resistance level is slightly higher at around 0.7110, which is the lower limit of the Kumo cloud on the daily chart.

Irina Manzenko,
Analytical expert of InstaForex
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