- AUD/USD bears the burden of coronavirus-led risk-off while nearing 11-year low.
- The three and 10-year Aussie bond yields drop to record low in a reaction to disappointing Chinese official PMIs, market’s sustained risk aversion.
- Caixin Manufacturing PMI. US activity numbers will decorate the economic calendar.
- Coronavirus headlines will be in the spotlight.
AUD/USD seesaws near 0.6490 during the early hours of Monday morning in Asia. That said, the pair gapped down from 0.6514 to 0.6470 at the week’s start as coronavirus-led risk aversion got numerical justification from China’s PMI. The pair refreshed 11-year low on Friday while declining to 0.6434, as coronavirus fears took a heavy toll on the global markets. Traders will now look for further details to extend the risk-off.
China’s official PMIs dropped to a record low, Caixin Manufacturing PMI in focus…
Despite marking a reduction in the coronavirus cases off-late, the Chinese economy isn’t out of the woods yet. The official PMI numbers for February, published Saturday, showed that the Manufacturing and Non-Manufacturing activities shrank to the lowest in history with key gauges down to 35.7 and 29.6 respectively.
This might have been the reason for China’s recent push to allow banks to delay bad loan recognition. Despite the gradual return of the factories, Beijing is still infected and the risk of second-round can’t be ruled out. Identifying this, analysts at Australia and New Zealand Banking Group (ANZ) said, Chinese authorities report a high work resumption rate but ANZ’s China economics team estimate that capacity utilization is likely only around 20% of normal levels. ANZ has revised down its estimate of Q1 GDP to 2.2% y/y.
At home, AiG Performance of Mfg Index and Commonwealth Bank Manufacturing PMI figures for February registered mixed readings as the formed slipped below 45.4 to 44.3 while the later one defied the 49.6 prior with 50.00 mark. Even so, the yields on Australia’s three-year and 10-year bonds dropped to the record low of 0.35% and 0.71% by the press time.
Markets will now be waiting for China’s Caixin Manufacturing PMI for February, up for publishing at 01:45 GMT. While forecasts suggest only a mild reduction in the activity gauge from 51.1 to 45.7, the actual reading could follow the official numbers and trigger another round of bears’ play.
Following that, the US Markit Manufacturing PMI and the ISM Manufacturing PMI will also be the keys since the Federal Reserve Jerome Powell has clearly shown intent to act if needed. Markets are mostly sure of a 0.25% rate cut from the RBA and Fed during their March meeting and hence any positive surprises can have higher than expected reactions.
Unless bouncing back beyond a descending trendline connecting lows marked from January 2019, near 0.6620 now, AUD/USD prices are less likely to avoid visiting March 2009 low close to 0.6280/85.