Chinese Manufacturing PMI Leaves Currency Traders Confused

Mixed Chinese manufacturing data over the weekend is keeping Asian markets confused. While equities markets around the region were down, China’s central bank moved to bolster the value of the nation’s currency by strengthening daily fix by the most for a single day since 2005. The People’s Bank of China set the value of the currency’s mid-rate 0.54 per cent stronger against the US dollar — the largest amount the fix has been reinforced since the renminbi was de-pegged from the greenback a decade ago.

The official purchasing managers index was unchanged at 49.8 in October, the National Bureau of Statistics said Sunday. That compared with a median estimate of 50, the line between favorable and unfavorable conditions, in a Bloomberg survey of economists. The official non-manufacturing PMI, a barometer of services and construction, fell to 53.1 from 53.4 in September, the weakest since December 2008. A separate purchasing managers’ index from Caixin Media and Markit Economics improved to 48.3 in October. That beat the median estimate of 47.6 in a Bloomberg survey and rose from the final reading of 47.2 in the month earlier.

The reports highlight the challenges confronting China’s old growth drivers as weaker manufacturing offsets strength from the transition to a services-led economy. The nation’s top leaders have reiterated priorities of both reforming the economy and maintaining medium- to high-speed growth in the next five years, according to a communique released by Xinhua News Agency on Thursday.

The Aussie dollar and the kiwi were in the red in early trading with the Aussie rebounding after domestic data showed a jump in monthly building approvals. The Aussie climbed 5 points to trade at 0.7141 as traders prepare for the RBA meeting tomorrow. What the Reserve does this week – and how the major banks respond if it cuts – will also be closely watched by smaller regional banks, most of which have not increased their rates as the larger lenders did last month. At this writing the odds are that the RBA will stand pat.

The New Zealand dollar did not fare as well declining a few points to trade at 0.6778 with China being its largest trading partner the questionable situation out of China leaves kiwi traders stressed. At current market analysts are projecting that China will miss its 7% growth for the year. The New Zealand dollar may decline this week, weighed down by dovish sentiment from the Reserve Bank of Australia, a decline in dairy auction prices and low US jobs growth. ANZ Bank is due to publish its monthly commodity price index tomorrow ahead of the overnight GlobalDairyTrade auction where futures market pricing is predicting a decline in the price of New Zealand’s largest commodity export.

In Japan the yen was mixed against the dollar and the euro. The USDJPY traded at 120.32 dipping 30 points but remaining dead center of its trading range after the Bank of Japan held rates and policy on Friday. The EURJPY is flat at 132.71. The dollar stood unchanged at 120.55 yen after losing 0.4 percent on Friday, when the BOJ wrong-footed investors who had wagered that the Japanese central bank would ease policy.

Focus now falls on US data, including the all-important non-farm payrolls due on Friday, and how that could affect the Federal Reserve’s stance on interest rates. The Fed did not hike rates this month but caused a stir by leaving the door open for a hike in December.