Australian Manufacturing Jump Unlikely to Save AUD/USD
Manufacturing fell in contraction in Australia as it did in most developed countries, but this sector is showing signs of a turnaround everywhere. In January manufacturing activity started expanding again after being in a recession for 18 months, but this alone is not enough to reverse the trend in AUD/USD, unless it comes from the USD side.
Manufacturing Report Showing Positive Signs Allover
S&P Global published the Manufacturing PMI for January this week, which jumped to a 1 year high at 50.1 points, compared to 47.8 in December. This is quite a jump, with new orders showing the biggest rise since 2022.
Price indices fell in January though, pointing to additional disinflation in the first half of 2024, but that’s welcome by producers since it would give them more margin for profit. The industrial input price index continues to fall despite global and domestic shipping problems which should have increased prices. There is a pretty stable correlation between goods inflation in Australia and the PMI Suppliers’ Delivery Times index. We’re getting back to normal times regarding inflation, since the recent drop in the delivery times index indicates that the disinflation of goods prices that we have seen in the last two years has ended.
Projections were that goods price inflation would fall faster, but the goods price index which shows approximately 4% inflation, is consistent with the actual Suppliers’ Delivery Times index of 41.1 points. This means that if supply chain disruptions in the shipping sector continue in the coming months, the inflation outlook may be revised if goods price inflation proves to be more persistent than originally assumed. Overall, the initial reading on Australian manufacturing activity in 2024 indicates a welcome increase in activity and confidence, pointing to the possibility of a cyclical rebound in 2024.
AUD/USD Continues to Be Driven by the Greenback
Testing the 100 SMA after bouncing off the 200 SMA
The price action in AUD/USD continues to be driven by the USD fundamentals though, surging nearly 600 pips higher in the last two months of 2023 when the USD was crashing lower as the FED started accepting that rate cuts are coming. But, then it reversed lower as markets reduced the odds of policy easing by the FED.
In the last two weeks, we have seen a consolidation between two moving averages on the daily chart and on Wednesday evening the decline resumed again after the FOMC. The price pierced the 100 SMA (green) at the bottom after losing 100 pips but it reversed higher on US regional banks fears, which are showing similar symptoms that we saw a year ago. So, for now, this pair is trading between 2 MAs, so we will try to trade this range, selling at the top and buying at the bottom.
AUD/USD Live Chart
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