Chinese PMI to define AUD's next move

After a two-day closure due to hurricane Sandy, US equity trading was subdued and liquidity remained light, with much of New York still without power and public transport, while attempting to cope with the aftermath of Sandy’s devastation. After making respectable gains on Wednesday, there was little in the way of impetus to carry risk currencies higher, with gains in early Europe met with resistance as US markets opened for business.

Nevertheless, the Euro remained cushioned by prospects of Greece securing their next bailout instalment, and Spain requesting a bailout in the near future. Still, its abundantly clear hopes of a Spanish bailout will wear thin if Prime Minister Mariano Rajoy maintains a casual demeanor in spite of the high expectations across global markets. Last month Rajoy stated: “I’m not going to take into account any pressure that people might exert on me, but frankly no one is doing that,” I don’t see any European Union leader telling me I should use the mechanism the ECB has put in place.” It appears Rajoy is using a ‘time’ strategy to gauge the need for a bailout while testing markets by displaying reluctance, and despite pressure from all corners of Europe he’s not succumbing to diplomatic pressure. While he may not relent to political pressure, markets will invariably be the deciding factor, with another run on Spanish debt likely to be the catalyst. The Euro rose above $US1.30 in early Europe, but offers above the figure placed moderate pressure on the Euro before bottoming out just shy of $1.2950. After earlier gains, European equities finished the day in the red, with the Euro Stoxx 50 index falling 0.49 percent on the day.

The Aussie dollar traded in a 50 pip range with earlier buying capped by offers around 104 US cents, before moderate downside was contained at 103.5 US cents. Key to the Aussie’s fortunes today will be China’s official manufacturing PMI scheduled for release at 12pm AEST. Consensus estimates show manufacturing in region will bounce back to an expansionary level of 50.3, in what appears to be a growing list of data points suggesting growth is rebounding. Also closely watch will be a revision to the HSBC October manufacturing index at 12.45pm AEST. Today’s official manufacturing PMI may mean the difference between a sustained break of 104 US cents or a steeper descent to the downside of 103 US cents. Conjecture surrounding the health of China appears to have been touch more positive in recent weeks, with solid trade data and a stronger flash manufacturing PMI last week providing support for China-contingent currencies such as the Aussie dollar. Expectations of a RBA rate cut have also began to subside with futures pricing currently showing a 55 percent chance of a 25bps cut at next weeks meeting, down from near 90 percent last week, driven by a stronger than expected inflation pulse and solid Chinese growth prospects. Financial bookies have taken it step further with the odds now in favor the RBA will hold on Melbourne Cup day. Also on the docket today is third-quarter import/export price indices scheduled for release at 11.30am AEST.