Positive Chinese PMI Lifts Australian Dollar; S&P 500 Targets Support at 1385

Over the weekend, the main macro story was the Manufacturing Purchasing Manager’s Index (PMI) report out of China, which beat expectations coming in at 53.1 (estimates were looking for a reading of 50.8), placing the survey firmly in expansionary territory.  In Forex markets, Australian Dollar was the biggest gainer, rallying more than 100 points at the market open.  Strong manufacturing data in China tends to be viewed as favorable for the Australian economy as China is the largest importer of the country’s commodities (copper, in particular).

The rally seen in the AUD/USD did see some retracement, the downside surprise in Australian Building Approvals but the Chinese PMI was enough of a surprise to keep the AUD elevated, as previous reports had suggested that this weekend’s PMI would come in weaker than previously expected.  Some analysts have questioned the validity of this data from the Chinese government but the number is likely to have a bullish effect on most markets to start the week.

Looking ahead, the next major releases will come out of the US, with most of the attention being focused on the Institute of Supply Management (ISM) and Non Farm Payrolls releases later in the week.  We will also have the Reserve Bank of Australia (RBA) monetary policy meeting on Tuesday but with no change in the base rate expected, most of the attention will be given to the accompanying policy statement and the ability of the central bank to maintain (or alter) its relatively hawkish bias.

Australian macro data has been coming in weaker recently, but these positive numbers out of China are likely to keep the country’s export companies supported in the first half of this year.  We will also have monetary policy meetings from the Bank of England and the European Central Bank, with no changes in interest rates expected.

In Japan, the Tankan survey came in weaker than expectations, and this is likely to lead to analyst forecasts for additional policy easing from the BoJ.  Data from Friday showed that the US Personal Consumption Expenditures (PCE) rose by 1.9 percent on a yearly basis (in line with expectations) and the University of Michigan Consumer Confidence survey rose to the highest level in a year.

Technical Analysis:


The NZD/USD is forming some very tight and clearly defined ranges on the hourly charts, with initial support now seen at 0.8040.  This area is the 38.2% Fibonacci retracement of the latest bull wave on the daily charts as well as a historical double bottom, so a break here will accelerate losses to the 0.7780 region before support can be expected.  The main level to the topside is 0.8250 and a break here will call for a test of the previous highs on the daily charts.

The S&P 500 is rolling over after hitting resistance at 1410.  This failure should bring some caution to short term bulls as previous resistance at 1420 remains intact and prices are now headed for a test of support at 1385.  Short term buys can be established here but a downside break will remove the bullish bias and send prices back to Fibonacci support.