AUD/USD – Australian Dollar Hits a Five Year Low

AUD/USD (0.7126)

Points to consider in this Forex article:

• The AUD/USD fell sharply before the release of China’s PMIs.
• The Composite PMI dropped below expansion in China. Consumer sentiment improved.
• Record setting yuan fix rate accommodation setoff risk-off

The AUD/USD Forex market fell sharply lower before China released its Purchasing Managers Index (PMI) numbers. The Caixin PMI printed at 50.2 in December. This was below the 52.2 print in November. The Caixin PMI Composite went into contraction area at 49.4 for December. It printed at 50.5 in November. The Westpac-MNI Consumer Sentiment number was also released by China today. That came in at 113.7 for December and above the 113.1 reading in November.

The timing for this PMI came in the midst of risk aversion trading in the Australian Dollar and other commodity currencies. Australian front end yields tracked lower as well. So did the Nikkei 225 stock index in Japan as well as S&P 500 futures. All of these moved lower before the news hit the wires. The drop in these asset classes occurred after Beijing and the People’s Bank of China (PBOC) weakened the yuan reference rate in the USD/CNY to its lowest level in five years. There is a lot of speculation this caused risk-off trading thanks to China, the world’s second largest economy, needing even more accommodative monetary policy to help stabilize and spur growth in their slowing economy.