Forex: Aussie Dollar Rallies on China Data, Euro Eyes PMI Revision

Talking Points

Aussie Dollar Rallies as China’s Service-Sector PMI Hits 14-Month High
Euro Looks to Manufacturing PMI Revision to Guide ECB Policy Outlook
US Dollar to View Factory Orders Data in Terms of Fed QE “Taper” Bets

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The Australian Dollar outperformed in otherwise quiet overnight trade, rising as much as 0.6 percent on average against its leading counterparts, following a strong set of Chinese Non-Manufacturing PMI data. The report showed service-sector activity expanded at the fastest pace in 14 months, boosting the outlook for economic growth in Australia’s top export market and thereby reducing scope for future RBA interest rate cuts. Traders are pricing in a mere 2 percent probability of a reduction in the baseline lending rate when at the central bank’s policy meeting tomorrow, according to figures from Credit Suisse.

The final revision of October’s Eurozone Manufacturing PMI print headlines the economic calendar in European hours. The release is expected to confirm flash estimates putting the index at 51.3, marking a narrow pickup in factory-sector activity from the prior month. The markets are likely to interpret the result in the context of shaping expectations for this week’s ECB interest rate decision. Soft news-flow punctuated by October’s unexpected CPI drop have fed calls for an expansion of stimulus and led the Euro sharply lower. A soft PMI revision would encourage such bets, amplifying selling pressure on the single currency, while an upside surprise may allow for a near-term bounce.

Later in the day, the spotlight shifts back to the US data docket, where the August and September editions of the Factory Orders data set are due to cross the wires. Investors continue to view US economic indicators in terms of their implications for timing the first reduction of Fed QE3 asset purchases. Orders are expected to have grown over both of the months in question after a slump in July, which may boost the US Dollar as traders consider the possibility of a comparatively sooner “tapering” of stimulus. News-flow out of the world’s top economy has notably softened relative to expectations (according to figures from Citigroup) over recent months however, leaving the door open for a downside surprise.

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