The Australian Dollar to US Dollar (AUD/USD) Exchange Rate remains stable despite the release of positive Gross Domestic Product Figure (GDP) out of the US during the offshore session Friday night. The result was a quarterly figure of 2.2%, whilst this is a reduction on the last quarter which was at 2.6% it was still an improvement on analysts’ expectations.
Over the weekend China’s National Bureau of Statistics (NBS) released its latest Manufacturing Purchasing Managers Index (PMI). This index is a survey of purchasing managers in the manufacturing industry and is considered an important indicator into the health of the Chinese economy.
The latest Manufacturing PMI indicated that manufacturing for the month of February in China was in contraction. The result was just below the expansion line at 49.9, however slightly better than economists’ prediction, which was for a result of 49.7. This month is now the second consecutive month of contraction for this index, following last month’s result of 49.8.
Following this news the People’s Bank of China (PBoC) shocked the market by lowering the Interest rates for the second time in short succession.
The PBoC lowered the rates by 25 basis points. In line with all other global economies that have recently cut rates, the PBoC sited inflation as a primary contributor.
The Australian Dollar experienced some strength initially following this news.
Bank of New Zealand strategist Kymberly Martin explained that ‘the Australian economy is quite closely linked to China so the initial knee-jerk reaction is that if the Chinese economy is doing better, that will be supportive for Aussie exports.’ However Ms Martin further elaborated that ‘if you look a bit more deeply, the cut leads to a weaker Yuan or signals further cuts, so the longer-term prospects are actually not supportive for the Aussie dollar.’
Locally today the Reserve Bank of Australia (RBA) will release the commodity prices index for the month of February, which provides the change in the selling price of exported commodities. This is a leading indicator of the health of our trade balance and has been on a downward trend for many months. Whilst no figure is forecasted the previous result was a reduction of 20.4%.
The markets will remain RBA focused on Tuesday with the next Interest Rate decision for the month of March. There is growing speculation that we can expect another interest rate cut by as much as a further 25 basis points. Due to the considerable level of expectation on this potential cut, it’s possible that if rates are kept on hold the Australian Dollar may make gains against the majors, however a rate cut is more than likely to cause further ‘Aussie’ weakness and sell-off of the Australian Dollar.
The Australian Dollar to US Dollar (AUD/USD) Exchange Rate is currently trading at 78.03 US Cents.