A better than expected Chinese manufacturing PMI failed to lift the yuan or Australian dollar on Thursday morning against a US dollar determined to end the month in the green.
The Chinese PMI for the manufacturing sector came in at 51.7 for August, slightly ahead of the market forecast of 51.3 and July’s reading of 51.4. The less important service sector PMI disappointed slightly with its print of 53.5, versus an expectation of 54.5.
Two hours after the data’s release the yuan had weakened against the dollar to 6.6, from Wednesday’s strongest yuan level of 6.58 – a fourteen-month high in yuan buying power. Against the euro, the yuan was little changed in the hours before and after the release of PMIs.
Another currency that failed to respond to economic data on Thursday is the Australian dollar. The currency is typically sensitive to Chinese data since China is by far Australia’s largest trading partner. Even with the morning’s much better than expected reading for Australian private capital expenditure (+0.8% q/q vs. +0.2% expected), the ‘Aussie’ remains virtually unchanged on rates from last night. As of writing, AUD/USD stands at 0.7903 – a one pip change on the exchange rate twelve hours earlier.
In South Korea, interest rates were left unchanged at 1.25%. While higher interest rates are almost certainly in the making, rising household debt and geopolitical risks have muddied the waters for the Bank of Korea. Many analysts now believe that rates will remain unchanged in South Korea until 2018. The Korean won has done little following the news, but did have a busy day on Wednesday, albeit a mixed day. Like most other currencies, the won fell against the US dollar but performed well against the euro and yen. As of writing, USD/KRW, EUR/KRW and JPY/KRW stand at 1125.6, 1334.0 and 10.15 respectively.
A note on the US dollar is warranted. In the last forty-eight hours, the dollar has shown enormous spirit in fighting back from long-term lows. The US Dollar Index rose on Wednesday for a second consecutive day and climbed back above 93.0 on Thursday morning, putting the index back into the green for the month, albeit by the narrowest of margins. Against the yen, for example, the dollar has gained more than 2% within this short window and what had looked like an inevitable attempt at the big 108 level, now looks like smooth sailing back into the centre of USD/JPY’s March-to-August trading range (approximately 108.35-114.50). At noon in Tokyo, USD/JPY stood at 110.52.
Other data on Thursday included industrial production for Thailand for the year ending July 31st. At 3.73%, actual growth in IP was better than the market forecast of 3.15% and much better than the previous print, which showed IP falling by 0.2% in the year to June. The Thai baht – Asia’s best performing currency in 2017 – remains rock solid despite the dollar’s recent recovery. USD/THB has spent the last two days straddling 33.20, close to the exchange rate’s long-term lows (baht highs).
The New Zealand dollar continues to fall. On Thursday, it fell to sixteen-month and twelve-week lows against the Australian dollar and US dollar respectively, partly on the back of this month’s decline in the ANZ gauge of business confidence, which fell to 18.3, from 19.4 in July. Now at 0.716, NZD/USD has fallen more than 5% since highs posted above 0.755 in late July.
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