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Australia Today - Weak global manufacturing PMIs put the Aussie and ASX under pressure

Market Analysis /
Greg McKenna / 02 Aug 2018

Welcome to my Australia Today column where I'll have a look at some economics, the Aussie dollar, and the outlook for the ASX200 and SPI. 

As every Feedback is welcome

THE AUSTRALIAN DOLLAR

The Aussie dollar is lower after weakness in commodities and a little bit of risk off tone and has reversed yesterday’s outperformance with a 0.25% loss overnight to 0.7405. No big deal, still ratcheting in this range. Trade data today will be important.

The Aussie dollar continues to move up and down with the Euro. But it’s fall last night was almost exactly the same minute as copper peaked and started to collapse. Off course the 3%+ fall in copper is only reflected in the Aussie dollar’s 0.3% to 0.7404 at the moment. But both moves come after the pretty poor results we saw from global manufacturing PMI’s yesterday. That the data undershoot expectations which were based on “flash” PMI estimates of just a week or so back suggests the weakness is still continuing and may even be accelerating.

Click on me, I'll expand
Click on me, I'll expand

News that president Trump is genuinely considering a 25% tariff on $200 billion of Chinese imports won’t be good for global growth or sentiment toward the Aussie dollar.

But, the market does view everything this president does through the lens of a negotiating tactic and USTR Lighthizer has said the US is still keen to talk to the Chinese. They are just trying to get China’s attention I reckon. SO, we haven’t seen a big reaction this morning. But the chance of an uncontrolled escalation is high in this environment.

That won’t be good for the Aussie dollar.

At the moment though, while the Aussie slipped with the copper price overnight the reality is that it’s the Euro (the USD) which is still the dominant driver. So for the umpteenth time this year we look to the moves there as the key determinant of whether or not the Aussie can push higher or will recommence its downtrend.

To that end, the price action tells the story.

73 to 75 cents is the rough two cent range the Aussie is trading in with very short-term support around 0.7350 and resistance at 0.7450. It a whole lot of nothing. But also, it’s not. These types of coiled markets, like we are seeing in many other pairs, are often the ranges from which big moves launch. So what this space.

On the day 0.7379 and 0.7437 seem like reasonable levels for support and resistance based on my 4-hour double Bolly band strategy. The trade data this morning might be of interest if it misses - either side - as will the CNY fix today.

Here's the daily Aussie dollar chart....hoodihum

Click on me, I'll expand
Click on me, I'll expand

ASX INDEXES

The washup of the mildly weaker picture for global stocks, weaker data, and commodities under pressure for the ASX after yesterday’s fraidy-cat stall below the range high and 5 point loss is that SPI traders have lopped another 26 points off prices overnight.

So, again, the ASX and  SPI have respected the range top and backed off a little overnight.

The flow of cash that started to emerge – or at least the relative performance of – global metals and mining shares was dealt a serious blow by the weakness in global manufacturing PMI’s over the past 24 hours. Likewise the escalation of the trade war as the US ratchets up the pressure on China to respond is also a negative because it’s ultimately bad for global growth – in the short run anyway, a fairer trading system would be a good thing.

So with folks getting more worried about the housing price fall accelerating and with the massive falls in global miners overnight SPI traders are probably right to have knocked off 26 points.

But I reckon that might be a little light on by the time we close trade this afternoon. IN SPI terms I’m looking for a further fall toward 6,145/60 from the current 6200 and that translates to the physical ASX (our cash CFD) somewhere near 6200. Here’s the SPI.

Click on me, I'll expand
Click on me, I'll expand

DATA:

On the day we get trade in Australia with the market expecting a $900 million surplus.

Euro area PPI is out tonight but everything pales into insignificance when compared to the BoE meeting decision. The market expects rates to be lifted 0.25% to 0.75%. But there will be much poring over the statement, minutes, and Mark Carney’s press conference.  

US factory orders and ISM manufacturing will be interesting later in the night.

Have a great day's trading.

Greg McKenna

Chief Market Strategist

gregmckenna.com.au

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