The commodity correlated Australian Dollar (AUD) is suffering huge losses following another contraction in the Chinese manufacturing sector, allowing Pound Sterling (GBP) to make bullish gains.
The Chinese manufacturing sector has shrunk for the tenth month in a row, with the rate of contraction growing for the fifth consecutive month. The Caixin China PMI was expected to show that the sector edged back towards growth, with the index forecast to rise from 48.6 to 48.9, although the actual result printed lower at 48.2. The news caused a chain reaction of events across the globe, starting with a plummet in domestic Chinese stocks. The Shenzhen Composite Index posted its biggest decline in nine years, dropping -8.2%, while the Shanghai Composite lost -6.9% before the markets were closed early in order to prevent any further volatility.
China is Australia’s biggest export partner, with the manufacturing sector requiring minerals such as copper and iron ore. A slowdown in new orders and production has seen manufacturing output fall, which will have an impact on the demand for Australian goods. As a result, the ‘Aussie’ has tumbled -1% against the US Dollar, -1.6% against Pound Sterling and -1.7% against the Euro (EUR).
The AUD/GBP exchange rate is currently trading in the region of 0.4880.
The seasonally adjusted UK manufacturing PMI dropped from 52.5 to 51.9 in December. While output, new orders, new export orders and employment were all above average, the overall averages for 2015 in each section were below those of 2014. New clients, both domestic and export, drove production up for the 33rd month in a row, although the drop in productivity means that it is unlikely manufacturing will have made much of a contribution to the UK economy in the final quarter of the year.
The data has softened Pound Sterling’s gains slightly, as investors worry about the impact a sluggish manufacturing sector could have on the economy and therefore the Bank of England’s (BoE) monetary policy. Markit Senior Economist, Rob Dobson, states that: ‘The December manufacturing PMI data also suggests that cost pressures remain heavily on the downside and this is driving modest reductions in average factory gate selling prices. If this ongoing mix of subdued growth and weak price pressures remains prevalent elsewhere in the economy, the Bank of England will likely continue to push any potential rate increase later into 2016.’
The GBP/AUD exchange rate is currently trending up 1.4%, between 2.0209 and 2.0515.
The only data remaining for either Australia or the UK is the ANZ Roy Morgan Weekly Consumer Confidence Index, which is unlikely to have a significant impact upon the AUD/GBP exchange rate. The US ISM Manufacturing Index, due later during today’s London session, could strengthen the US Dollar (USD) to the detriment of the Australian Dollar, however, allowing Pound Sterling to climb even higher.
The AUD/GBP exchange rate is currently trading between 0.4870 and 0.4946.
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