Thursday, March 22, 2012

Chinese Manufacturing PMI Underwhelms

Chinese Manufacturing PMI data came in at 48.1 this morning.  The figure was below last month’s 49.7 level and was the fifth straight month of a below 50.0 report.  A surtvey figure below 50 indicates industry expansion.  Therefore, the PMI number this morning has added more fuel to the fire that China’s impressive growth is in fact slowing as global markets decrease demand.

On the news, commodity currencies continue to be under presuure with the AUDUSD currentlt trading just below 1.0400, way off its morning high of 1.0480, while the NZD has fallen to 0.8085 from a high of 0.8155.  Looking ahead, Forex traders, will be wondering whether China will move again to decrease its Reserve Requirement Ratio for banks, thus leading to further lending stimulus.   The question though for China, is just how effective their easing policies can be in the3 face of a slowing global economy.

Elsewhere in the region, Asian currencies were lower across the board on the data.  From the Economic Times:
Most emerging Asian currencies fell on Thursday after data showed weak factory activity in China, indicating they remain vulnerable to slowing growth in the world's second-largest economy.
China's manufacturing activity shrank in March for the fifth consecutive month, with the overall rate of contraction deepening and new orders sinking to a four-month low, the HSBC flash purchasing managers index (PMI) showed.
That prompted emerging Asian currencies to give up initial gains, with the South Korean won, the Philippine peso and the Malaysian ringgit weakening.
"It is becoming apparent that the slowdown in China is going to suck the rest of Asia into it, and we envisage trade numbers for Asia ex-Japan being softer in the months ahead given the weaker-than-expected new orders data in China," said Suresh Kumar Ramanathan, regional rates and foreign exchange strategist at CIMB Investment Bank in Kuala Lumpur.
"Asia ex-Japan currencies must now start to price this in, so weakness in Asian currencies will continue going forward. Playing Asia ex-Japan FX from the short side is still our preferred strategy." Read More

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