AUD/USD Soars After Data Shows Chinese Manufacturing Growing for the First Time in 2014

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AUD/USD Soars After Data Shows Chinese Manufacturing Grew for the First Time in 2014

AUD/USD started the week with a strong rally to a new high on the month. The mover – HSBC Flash Manufacturing PMI for China in June coming in at 50.8. Economists expected a reading around 49.7. May’s reading was revised down slightly to 49.4 from 49.7.
China HSBC manufacturing PMI
(source: ForexFactory)

As you can see from the chart above, this is the first month of growth in 2014 for Chinese manufacturing.

According to Hongbin Qu at HSBC there are signs of a recovery stemming from recent “mini-stimulus” measures. This is still just 1 month of data, so policy makers are likely to “continue their path of accommodative policy stance until the recovery is sustained”

China – AUD correlation
China’s economic condition has a positive correlation with the Aussie. A strong Chinese economy provides Australia with strong demand for its production resources. In general this points to a growth which suggests future tightening of monetary policy (central banks raising interest rates). As we know from “Forex 101”, upside in interest rate expectation = upside pressure on that country’s currency.

The AUD/USD indeed rallied sharply as you can see in the 1H chart on the back of the positive data for China. This rally just made a new high on the month.
audusd 1h chart 6/23
(audusd 1h chart, 6/23)

AUD/USD has been bullish in June. When looking at the pair in the daily chart, we see that the 2014-high awaits at 0.9460. AUD/USD has been bullish in 2014, and a break above 0.9465 should continue the 2014 trend, with the 0.9543 and 0.9756 (Oct. 2013 high) levels in sight.
audusd 6/23 daily chart
(audusd daily chart, 6/23)

Some other signs of a bullish continuation:
1) The 200-, 100-, 50-day simple moving averages are developing bullish alignment.
2) The daily RSI tagged 70 and held above 40 in 2014. Now it is pushing above 60 and reflects bullish continuation momentum.

To contact the reporter of this story, email Fan Yang at fan@forexminute.com
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Fan Yang has been a professional forex trader and analyst since 2007. He specializes in technical analysis and has a Chartered Market Technician designation since 2011. He was the chief technical strategist at CMSFX He was also the founder and chief currency strategist at FXTimes Over the years, Fan has not only been a trader and analyst but also an educator. As a proponent of both technical and fundamental analysis in trading, Fan advocates simplicity and discipline as key factors in making trading decisions when faced with so many "clues" and "signals". Currently Fan Yang is the chief currency analyst and webinar instructor at forexminute.com.