Chinese Manufacturing PMI Deemed Aussie Supportive | Daily FX Commentary

• Aussie closes flat ahead of RBA meeting today, likely to be non-event;
• UK July mortgage approvals read to the upside, Euro remains in firing line;
• Greenback moderately lower against basket of currencies on US Labour Day.

The Aussie dollar managed to shrug off a weakened manufacturing reading in early trade yesterday as markets awaited official Chinese Manufacturing PMI and subsequent HSBC version. Both came in weaker than anticipation in August whilst remaining over 50, therefore indicating further expansion in Chinese manufacturing activity. The Aussie dollar received the data in a positive light, particularly in thin trade as overseas data was scarce. Falling moderately overnight, traders now turn towards the RBA rate decision this afternoon for direction. We expect to see much of the same from the notoriously uneventful meeting and confirmation of neutral bias will likely lead to Aussie dollar support.

Sterling managed to creep higher against a stagnant greenback during the overnight sessions. Gains were limited however and despite an uplift in July mortgage approvals, manufacturing activity during August was recorded at the slowest pace in over 12 months in further signs that the UK economic recovery remains fragile. As events surrounding the Ukrainian crisis remain rife and manufacturing activity across the Eurozone was recorded marginally lower than first thought, the Euro reached 1-year lows against the greenback as we approach the European Central Bank rate meeting later in the week. If data from the US this evening can come within a whisker of expectations, it is likely that the Euro will remain under pressure in the build up to Thursday’s meeting.

As US markets were closed for US Labour Day, trade across the board was subdued and we can expect to see much of the same throughout today’s sessions. This evenings ISM manufacturing reading is likely to stir up some attention where a reading of 57.1 for July marked the fastest pace in manufacturing activity in over three years. Expectations are moderately lower for August but any positivity would indicate optimism amongst US businesses and is often deemed a reliable indicator of US economic health.

[B]Tom Williams
Currency Analyst[/B]