The Pound lost some ground against the Antipodean currencies earlier this morning as the latest Chinese PMI data printed inline with expectations. Some market-players were bracing for a more exaggerated slump in Chinese Manufacturing activity, which led to a slight relief rally when the report came in as expected.
The Australian Dollar grew by around half a cent bringing GBP/AUD down to 1.6587, whilst the New Zealand Dollar advanced by around 0.6 cents against Sterling to 1.9600 (GBP/NZD).
The latest official Chinese Manufacturing report showed that industrial activity fell 50.8 to 50.1 during June as New Orders slid and Inventories worsened. Zhang Liqun of the Chinese Development Research Centre said:
“The June PMI fall across the board on major sub-indexes indicates downward pressure in the economy”.
The HSBC Chinese Manufacturing survey, which focuses on smaller-to-medium sized enterprises, painted an even grimmer picture of the Chinese economy. The HSBC indicator printed at a 9-month low of 48.3, slightly better than forecasts of 48.2 but significantly weaker than the previous score of 49.2 in May. HSBC noted that Chinese firms saw New Orders from abroad shrink for a third consecutive month, but this time at the fastest pace since September. Hongbin Qu, Chief Economist at HSBC commented:
“The recent cash crunch in the interbank market is likely to slow expansion of off-balance sheet lending, further exacerbating funding conditions for SME’s”. And warned that: “As Beijing refrains from using stimulus, the ongoing growth slowdown is likely to continue in the coming months”.
Usually downbeat data out of China, the world’s second largest economy and the most prominent driver of growth in the Asian-Pacific region, leads to declines for the ‘Aussie’ and the ‘Kiwi’. On this occasion, however, both the Australian Dollar and the New Zealand Dollar climbed against the Pound in the immediate aftermath of the data release. It is possible that traders interpreted the underwhelming results as a signal that the People’s Bank of China’s will be forced to embark on another round of stimulus.
PBoC Governor Zhou Xiaochuan recently stated that the Central Bank would definitely help institutions with acute liquidity shortages to maintain financial stability. So whilst, the falls in GBP/AUD and GBP/NZD could be attributed to investor relief that the results did not undershoot the market consensus, it is also possible that ‘it has got to get worse to get better’ stimulus hopes could also have played a part in the rise of the Antipodeans.
The Pound could receive some support later this morning if the UK Manufacturing print signals a third month of expansion. Experts predict that the Purchasing Managers Index could have risen from 51.3 to 51.5 during June. However, there is potential for more ‘Aussie’ relief rallies tomorrow morning as the Reserve Bank of Australia looks set to refrain from any further interest rate reductions during July.
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