The flailing Aussie Dollar now looks to China and the US to throw it a lifeline, or seal its fate.
Iron ore continues to weigh on the Australian Dollar as it prints fresh 5-year lows. China Manufacturing remains stagnant at 50 to show it neither contracted or expanded. However with a consensus of 50.4 and falling short of expectations it saw the Aussie react and quickly to break below yesterday’s lows.
HSBC Flash Manufacturing PMI has itself lost volatility of late, remaining between 50 – 50.5 for the past 3 months. If this trend continues then it is likely it is more likely to be whether it can remain above 50 to drive the Aussie, over how far it deviates away from expectations.
However if we return to the previous volatility and see numbers of 1 to 1.5 away from expectations (either above or below consensus) then we can certainly expect some fireworks.
Technically the 0.879 swing high is a significant top which I do not expect the Aussie to recover to this week, however 0.854 is unlikely to break on the first attempt. Even if it does there are several key technical levels around 0.85 which I also expect to hold. I think it is more likely we will remain between 0.845 and 0.864 for the remainder of the session. A break above 0.864 opens up 0.87, with a break below 0.845 targeting 0.85.
It will then be over to the US to dictate the Aussie with Inflation and Employment data. With these two data sets at the forefront of the FED’s attention we can safely assume the markets will been keeping close tracks of these releases. Strong CPI and employment could even see AUD break below 0.850, but any softness in Employment or inflation should see it back above 0.864. I suspect numbers will come in around consensus, keeping the Aussi ranging between 0.854 and 0.864.