Asia Focus: AUDUSD Higher On China PMI

HSBC China flash PMI for September came out at 51.2 from the prior month final of 50.1, beating market expectations and reaching a six-month high. The strong PMI reading is yet another sign of growth for China after a tepid summer in which worries about continued contraction weighed on the Aussie, but the latest batch of China data has since guided direction to the upside.

Potential for a pullback?
AUDUSD’s rise off 0.9000 at the start of September looks firm, but the potential for USD safety bids amid debt ceiling debates this week could provide some pressure on the pair back towards 0.9250. At that point, we could see further support for a rise above 0.9500 into October.

There is a lot of risk with AUSDUSD, so be cautious especially with Federal Reserve speakers throughout the week, but market expectations for a decline in US September consumer confidence on Tuesday could keep the pair elevated.

Aussie fundamentals
AUD has been resilient on the backs of China’s latest round of positive economic data, but I am still concerned about the domestic picture, which will surely bring the dovish Reserve Bank of Australia back in focus next month.

Higher unemployment is a growing issue in Australia, and Bloomberg reports that the Aussie mineral sector jobless rate rose to 11 percent from less than 2 percent within the past year. I suspect that many businesses, especially in the mining sector, are working to protect the bottom line after higher demand forecasts.

Despite the concerns, the iron ore market was active last week as China increased its stockpiles at major ports ahead of domestic holidays, which provided another positive signal for trade.

What’s ahead
AUDUSD continued to push higher during the Asia session, so we could see moves towards 0.9500 without the pullback. Traders should remain alert about debt ceiling talking points throughout the week especially as the House passed a budget resolution that would strip funding for President Obama’s health care law. However, the bill could be dead on arrival in the Democrat controlled Senate, which could bring lawmakers back to square one as the September 30 deadline nears.

US PMI data on Monday and consumer confidence data on Tuesday should guide some direction.