Chinese Services PMI, USD/CNH, Economic Recovery, US Senate Runoffs – Talking Points
- Caixin’s Chinese PMI crossed the wires at 56.3, against an expected reading of 57.9
- USD/CNH unfazed by the reading, pair moves slightly lower as AUD/USD fell
- Chinese Yuan and Australian Dollar eyeing US Senate runoff elections
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The December Caixin Services PMI reading came in at 56.3, against a consensus of 57.9, and a previous outcome of 57.8. The result, while smaller than November’s 57.8, indicates the Chinese economy remains robust in the face of a new COVID strain and rising cases globally. The economy continues to outperform its global counterparts, as Europe and the United States continue to struggle to quell cases and dole out vaccines.
China experienced economic growth throughout the latter months of 2020, as the country recovered from an early lockdown. Caixin PMI rebounded from a February low of 26.5, culminating in a November high of 58.4. China’s economic expansion has fueled a revival of industrial and infrastructure projects, which has sent certain metals such as copper and iron ore higher. This reading indicates continued growth in the Chinese economy. Iron, copper, and the Australian Dollar may benefit as a result of the positive PMI print. In immediate trade, copper experienced a small bounce as the number crossed the wires.
Copper 1min Chart
The significant move higher in metals as of late has massively benefitted AUD/USD, with the Australian Dollar at levels not seen since April 2018. The economies of China and Australia are extremely intertwined, as billions of dollars of iron ore are exchanged between the countries on a yearly basis. Chinese PMIs give insight into economic activity, which determines demand for metals such as iron and copper. Good economic data may benefit the AUD, whereas poor ones from China may cause the Australian Dollar to weaken. China’s strong rebound has helped fuel the Australian Dollar’s recent move higher.
The Yuan’s relatively quiet response to the data could be due to a more pressing issue for markets in the immediate term, the Senate runoff elections in the United States. Early results crossed the wires around the time of the Caixin readings, causing market volatility. Over the next 24 hours, as the votes are tallied and the outcome for fiscal policy is better understood, USD/CNH and AUD/USD may remain glued to ongoing results.
AUD/USD 1m Chart
Written by Brendan Fagan, DailyFX Intern
Contact Brendan on Twitter @BrendanFaganFx