AUD hurt by weak China PMI data

The first day of the new month begins with Purchasing Managers’ Index data out of China which showed the nation’s manufacturing sector remained in contractionary territory in January, according to official data released by Caixin-Markit. The weak official PMI readings may prompt the central bank to support the economy by cutting the reserve requirement ratio for commercial lenders.

At 48.4 in January, the seasonally adjusted PMI remained below the crucial 50.0 value separating growth from
contraction for the eleventh successive month.

The non-manufacturing PMI fell to 53.5 last month from a 17-month high of 54.4 in December.

Readings on manufacturing activity outside China were also disappointing. Japan’s manufacturing PMI dropped 0.1 points to 52.3.

China-exposed currencies were hurt, with the Australian dollar down 0.2 per cent and the New Zealand dollar down 0.1 per cent.

Japan’s yen was 0.1 per cent weaker at Y121.25 per dollar. The currency weakened by 1.9 per cent on Friday after the Bank of Japan’s surprise decision last week to adopt negative interest rates.

Japanese government bonds rallied following Friday’s decision. The yield on the benchmark 10-year bond fell to a record low 0.061 per cent this morning, while yields on 2- and 5-year Japanese government bonds fell turned negative on Friday. Yields move in the opposite direction to bond prices.

The yield on the benchmark Australian government 10-year bond hit a three-month low today of 2.592 per cent.

In commodity markets, oil was weaker this morning after notching up their first back-to-back weekly gains in months. Brent crude, the international benchmark was 1.6 per cent lower in Asia today at $35.43 a barrel, having gained 8 per cent last week for its first weekly double since the end of November.

West Texas Intermediate was 1.4 per cent lower this morning at $33.15, having gained 4.4 per cent last week. It was the first back-to-back weekly gain for the US benchmark since the end of September. Due to some expectations of production cuts, oil prices have recovered by more than a quarter since hitting 12-year lows in late January.

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