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China's October NBS Manufacturing PMI drops to 49.3 as Non-Manufacturing PMI slips to 49.7
China’s Manufacturing Purchasing Managers’ Index (PMI) fell to 49.3 in October from 50.1 in the previous reading, according to figures released on Saturday by China’s National Bureau of Statistics (NBS). The October result undershot the market consensus of 50.0.
Meanwhile, the NBS Non-Manufacturing PMI fell to 49.7 in October from September’s reading of 50.2.
Australian Dollar edges lower
Following the weaker Chinese PMI figures, the Australian Dollar (AUD), a proxy for China, has edged slightly lower. At the time of writing, the AUD/USD pair is trading at 0.7028, down 0.06% on the day.
Australian Dollar: Frequently Asked Questions
Interest rates set by the Reserve Bank of Australia (RBA) are among the principal influences on the Australian Dollar (AUD). Australia’s abundant natural resources also make the price of iron ore, its largest export, a key driver. Other influences include the health of China’s economy, as Australia’s largest trading partner, alongside domestic inflation, economic growth and the trade balance. Investor sentiment matters too: a willingness to hold riskier assets (risk-on) supports the AUD, while a preference for safe havens (risk-off) also shapes its performance.
By setting the interest rate at which Australian banks lend to one another, the Reserve Bank of Australia (RBA) influences borrowing costs across the economy and, in turn, the Australian Dollar (AUD). Its primary objective is to keep inflation stable at 2-3%, raising or lowering interest rates as required. Rates that are relatively high compared with those of other major central banks support the AUD; relatively low rates have the reverse effect. The RBA may also influence credit conditions through quantitative easing, which weighs on the AUD, or quantitative tightening, which supports it.
As Australia’s largest trading partner, China has a substantial influence on the value of the Australian Dollar (AUD). A strong Chinese economy buys more Australian raw materials, goods and services, increasing demand for the AUD and lifting its value. When Chinese growth falls short of expectations, the reverse applies. Consequently, upside and downside surprises in China’s growth figures often directly affect the Australian Dollar and its currency pairs.
According to 2021 data, iron ore generates $118 billion a year as Australia’s largest export, with China its main destination. Changes in its price can therefore influence the Australian Dollar. Rising iron ore prices generally lift overall demand for the currency and support the AUD, while falling prices have the opposite effect. Higher prices also tend to increase the likelihood of an Australian trade surplus, providing further support for the AUD.
Another influence on the Australian Dollar is the trade balance: export earnings less spending on imports. Strong overseas demand for Australian exports can lift the currency’s value through the excess demand generated by foreign buyers relative to Australia’s spending on imports. A net trade surplus therefore supports the AUD, whereas a trade deficit has the reverse effect.
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