- Australian Dollar (AUD) investors weigh up encouraging Australian PMI data vs elevated US – China tensions
- China to close US consulate in Chengdu, concerns rise over Phase 1 trade deal
- US Dollar (USD) broadly under pressure as US economic data disappoints
- Rising US coronavirus cases are starting to hinder the economic recovery
The Australian Dollar US Dollar (AUD/USD) exchange rate is trading flat at US$0.7098 as it heads towards the weekend. The pair settled -0.6% lower on Thursday at US$0.7098. However, it is still on track for impressive 1.4% gains across the week in what will be the fifth straight week of gains.
Domestic data was supportive of the Australian Dollar with the flash PMI numbers showing that the manufacturing and service sector expanded in July. The composite PMI was also firmly in growth territory.
However, attention turning back towards deteriorating US – China trade relations has weighed on the China proxy, the Australian Dollar.
Relations between the two powers have soured further as Beijing retaliated against Trump’s demand to close its consulate in Houston by ordering the closure of the US consulate in Chengdu.
The fear for investors is that relations deteriorate to such an extent that the Phase 1 trade deal agreed in January collapses. This would hit global growth, and worse still it would hit global growth as the global economy attempts to recover from the coronavirus crisis.
The US Dollar is slumping lower versus its major peers as US data continues to unnerve investors. Today the US manufacturing PMI rose to 51.3 in July, up from 49.8 making a 6-month high. The service sector PMI rose to 49.6, up from 47.9 also a 6-month high. However, the fact that the dominant sector remains in contraction is a disappointment.
When compared to other areas such as the UK and Europe where the PMI’s are back in expansion territory, there is a growing concern that the rising coronavirus cases in the US are hindering its economic recovery.
The data comes following yesterday figures which showed that he recovery in the US labour market was stalling. The number of Americans signing up for jobless benefits increased by 1.4 million, up from 1.3 million the previous week.
The weakening economic picture is dragging on demand for the US Dollar.