China’s services sector continues to slow, generating renewed downside pressure on the offshore Chinese yuan and Australian dollar against the US dollar. But with the data merely confirming what many already knew, and with policymakers continuing to rollout fresh stimulus measures, it’s questionable whether the selling will last.
Caixin Services PMI hits CNH, AUD hard
The Caixin China general services PMI fell to 51.8 In August from 54.1 a month earlier, hitting the lowest level this year. While above 50 indicating an expansion in activity levels, the slowdown adds to evidence that weakness in China’s manufacturing sector is now spreading to larger parts of the economy. Within the report, new orders declined for the first time this year while input price inflation eased by the most in six months.
All very gloomy but hardly different to the message contained in the government’s own services PMI released last week. It’s not only known information but explains why Chinese policymakers are actively moving to stimulate domestic demand already, pointing to the potential for the initial market reaction to fade.
Source: Trading View
USD/CNH broke the downtrend that’s been in place on the 4-hourly chart following the PMI release but has since pulled back. A failure to sustain the break may see a pullback towards minor support at 7.2700. Below that, long-standing uptrend support is located around 7.2500.
As mentioned previously, the catalyst for the move was largely identical to information received last week and we’ve seen a lot of new positive news flow since then.
-- Written by David Scutt
Follow David on Twitter @scutty
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