- China’s rising industrial activity signals growth for AUD.
- Rising Omicron infections in Australia and China threaten AUD growth.
- US Treasury yields are on the rise, but effects yet to hit Forex markets.
The Australian dollar was on a reversal in the early hours of trading on Wednesday, as the AUDUSD price went down by 0.07% to trade at 0.72447 at 0804 GMT. This came following Tuesday’s gain of 0.68%, amid promising prospects in the China commodity market.
Rising industrial activity in China could propel AUD higher
The commodity-linked AUD has also gotten some pressure off its back, following signs of an increase in industrial activity in China. According to the latest Purchasing Managers Index (PMI) figures, manufacturing in China rose at a higher rate in December. This was attributable to increased production and lower prices.
In a report released on Monday, the Caixin manufacturing purchasing managers’ index (PMI) rose to 50.9, the highest level since June 2021 and well above the 50-point threshold, signaling expansion. This beat analysts’ projection of 50.0 for December and was above the November figure of 49.9.
The manufacturing PMI rose to 50.3 in December from the previous month’s figure of 50.1, according to official statistics issued last week by the National Bureau of Statistics (NBS). The difference between the two data sets is that the Caixin data is mainly a survey of smaller manufacturers while the NBS data covers the larger factories.
Rising Covid-19 Infections a cause of concern
If China manages to sustain the growth in industrial activity, then the demand for commodities is likely to rise, which is good news for the Aussie. China’s manufacturing activity could, however, suffer the ramifications of a spike in Covid-19 cases, as the Omicron variant sends more cities in China under lockdown.
Following the discovery of three asymptomatic cases between Sunday and Monday, the municipal authority of Yuzhou, Henan province, announced that all 1.2 million inhabitants would be restricted to their homes. Yuzhou joins Xi’an, whose 13 billion residents have been under lockdown since December 13th.
In the meantime, rising cases of Omicron in Australia are creating jitters among investors. For the third day in a row, the country recorded a new daily record high. To make matters worse, Australia faces a biting shortage of both rapid antigen test and PCR test kits as anger grows over the government’s handling of the situation.
On Wednesday, Australia recorded 64,758 new cases of the virus, with the majority occurring in New South Wales and Victoria. That was a significant increase above the previous day’s total of about 47,800 infections nationally.
Potential short term movers
From Australia, there’s not much to look forward to on the economic calendar. You may, however, be interested in today’s release of RBA’s chart pack highlighting some of the central bank’s financial and macroeconomic statistics.
Meanwhile, even though Treasury yields rose overnight, the DXY index for the US dollar remained mostly steady. This is the highest interest rate since February 2020 on the 5-year note. However, the one- and two-year interest rates declined. The shorter-term yields are likely to have a greater impact on the US dollar.
AUDUSD is still on the ascending channel that traces back to December 6th, as shown on the chart below. The RSI is currently at 53 and is above the 14-MA, signaling a likelihood that the pair could head higher. If the bulls up their tempo, AUDUSD could rise to encounter resistance at 0.7279.
However, if the market momentum weakens, the pair could head down to find the first support at 0.7218. However, if it breaches the second support at 0.7183, it could signal an impending exit from the ascending channel and trigger a downtrend heading into the weekend.