China Manufacturing Slows in October Amid Export Weakness; AUD/USD Dips

China’s manufacturing sector reported slower activity in October and margin squeezes. Domestic demand improved while external demand weakened. October’s data underscored the need for Beijing and the People’s Bank of China to roll out fresh stimulus to bolster the economy.

The RatingDog China General Manufacturing PMI fell from 51.2 in September to 50.6 in October, remaining above the neutral 50 level. Economists had expected a PMI of 50.9.

The October survey highlighted the following key trends:

• Manufacturing production growth slowed for the second time in four months amid weakening external demand.
• Domestic demand drove new business higher for a fifth consecutive month.
• New export orders fell at the sharpest pace since May.
• Domestic demand improvements, offsetting weaker external demand, supported employment growth, which rose at its fastest pace in over two years.
• Input prices increased at a softer rate than in September.
• Despite rising input prices, goods producers cut output prices. Intensifying competition and weak external demand led goods producers to lower their export charges for the first time in six months.

October’s PMI survey followed President Trump’s trade agreement with Chinese President Xi, limiting the impact of the data on markets.

Expert Views on China’s Manufacturing Sector

RatingDog founder Yao Yu commented:

“Overall, the pace of improvement signalled by the RatingDog China Manufacturing PMI slowed in October. Among the sub-indices, only employment showed a positive month-on-month change, while all other indicators declined to varying degrees.”

Despite the rising competition and ongoing price pressures, Yao Yu had a positive outlook, adding:

“Recently, China’s main policy focus has shifted to the ‘15th Five-Year Plan.’ Subsequent policies to stabilize the economy and boost domestic demand may be introduced, potentially providing some future support for the PMI index.”

Aussie Dollar and Hang Seng Rally on China Data

The forex markets responded promptly to the PMI release. The AUD/USD briefly climbed from $0.65416 to $0.65444 following the PMI release before dropping back to $0.65416. The pullback left the pair down 0.01% at $0.65418 at the time of writing.

Given Australia’s trade-to-GDP ratio of over 50% and its exposure to China, softer Chinese manufacturing activity could weigh on the Aussie economy. Slowing economic momentum may raise bets on a November RBA rate cut, easing demand for the Aussie dollar. However, the US-China trade deal could ease concerns about further demand weakness.

While the Aussie dollar struggled for direction, the Hang Seng Index responded positively to the data. The Index rose from 25,928 to a high of 26,039 after the PMI release. At the time of writing, the Index was up 0.51% to 26,038.

Economic Data and Stimulus in Focus

While the manufacturing sector remained above the crucial 50 neutral level, upcoming economic indicators may have more impact on risk assets in the coming sessions.

October trade data, due on Friday, November 7, and consumer price figures on Monday, November 10, will require consideration. Robust imports and exports, combined with easing deflationary pressures, are likely to drive demand for Mainland and Hong Kong-listed stocks and commodity currencies such as the Aussie dollar.

Crucially, traders may brush off soft data on hopes that President Trump and President Xi’s trade deal could boost external demand and ease price pressures on Chinese manufacturers.

Discover strategies to navigate this week’s market trends here.