China PMI Boosts AUD
China’s official manufacturing PMI released over the weekend came in at 53.1 (cons. 50.8), substantially beating consensus opinion. The Australian dollar was the main beneficiary and climbed over 100 pips at the Asia open, although the rally eventually lost some steam after a very weak Australian building approvals report. The weekend PMI was all the more surprising given investors had been mentally prepared for a soft print after the weak private sector flash estimate released over a week ago. The weekend PMI is likely to continue to set a positive tone throughout the week, although US data releases such as ISM and non-farm payrolls will also be key. In particular, the data comes at a crucial moment for AUD given the RBA is scheduled to meet on Tuesday. Our Australia economics team expect no change to the cash rate and the latest Chinese numbers support this view despite a loss of momentum in recent Australian economic data. USDJPY has also started the week on a firmer note as Japan’s new fiscal year gets underway. The prospect of yield-seeking yen-outflows over the weeks ahead should keep the pair on a trajectory towards our 3m target of 85.00. Japan’s Tankan survey was slightly weaker than expected which gave USDJPY a nudge higher by slightly raising the risk of another round of BoJ easing. US data on Friday showed core PCE in line at +1.9% y/y while University of Chicago consumer confidence survey hit a 13-month high. BoE and ECB policy decisions are due this week and our economists expect no material change in policy settings.
Click here to read the full report: UBS Morning Adviser Europe
UBS Investment Bank