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.
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.
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 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.
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