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Australian dollar rises after upbeat Chinese manufacturing data

posted onDecember 2, 2019

The Australian dollar rallied 0.4% at $0.6789 on the first trading day of December after an unexpected rebound in Chinese manufacturing activity helped offset investor anxiety over world growth.

Data released over the weekend showed the official Purchasing Managers’ Index (PMI) advanced to 50.2 in November from 49.3, while the non-manufacturing PMI climbed to 54.4 from 52.8, according to China’s National Bureau of Statistics.

Chinese service industry business activity index stood at 53.5, representing an increase of 2.1 percentage points from the previous month, while new orders index returned to expansion territory according to the report. 

Separately, survey data from IHS Markit released on Monday (Dec. 2) showed the Caixin manufacturing Purchasing Managers' Index rose slightly to 51.8 from 51.7 in October, signaling an improvement for the fourth consecutive month.

Chinese  factory activity expanded at a moderate pace in November but this was the strongest growth since December 2016, IHS said. The survey also showed a jump in new businesses and positive movement in production.

Foreign demand grew for successive months for the first time since the beginning of last year. 

Commenting on the upbeat factory activity data from China  Zhengsheng Zhong Director of Macroeconomic Analysis at CEBM Group said:

"If trade negotiations between China and the US can progress in the next phase and business confidence can be repaired effectively, manufacturing production and investment is likely to see a solid improvement." 

Meanwhile, Rodrigo Catril, senior foreign exchange strategist at National Australia Bank, wrote in a note: 

“The move back into expansionary mode in China’s official manufacturing PMI is good news ... (but) also somewhat tempered by the facts China’s industrial sector is still besieged by deflationary risks and rising borrowing costs while the domestic consumer remains constraint by higher food prices.” 

Other currencies also rallied after the Chinese manufacturing data exceeded expectations. New Zealand's dollar jumping to its highest in almost four months at $0.6475. It was up 0.75% on the day, according to Reuters.

ASX ended just shy of a new all-time high. China is Australia's largest trading partner in terms of both imports and exports. Good economic news is good for stocks and currencies today.