China’s RatingDog Manufacturing PMI Beats Forecasts Despite Easing to 52.0 in September

A slight easing in Chinese manufacturing activity saw the RatingDog Manufacturing Purchasing Managers' Index (PMI) edge down from 52.1 in August to 52.0 in September, according to the latest figures released by RatingDog on Monday. The market forecast had stood at 51.6.

How Is the Market Responding to China’s RatingDog Manufacturing PMI?

Little, if any, reaction to China’s PMI release is evident in the Australian Dollar (AUD), a proxy for China. At the time of writing, the AUD/USD pair trades at 0.7030, lower by 0.03% on the day.

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Australian Dollar: Frequently Asked Questions

Which Factors Matter Most for the Australian Dollar?

Interest rates set by the Reserve Bank of Australia (RBA) rank among the strongest influences on the Australian Dollar (AUD). Australia’s abundant natural resources also make the price of iron ore, its largest export, an important driver. Other influences include the state of China’s economy, given its position as Australia’s largest trading partner, alongside domestic inflation, economic growth and the trade balance. Investor sentiment matters too: a willingness to buy riskier assets (risk-on) supports the AUD, while a preference for safe havens is known as risk-off.

How Do Reserve Bank of Australia Decisions Shape the Australian Dollar?

By setting the interest rate at which Australian banks can lend to one another, the Reserve Bank of Australia (RBA) affects the Australian Dollar (AUD). That rate, in turn, influences borrowing costs across the wider economy. Maintaining stable inflation of 2-3% is the RBA’s primary objective, pursued through increases or reductions in interest rates. Rates that are relatively high compared with those of other major central banks lend support to the AUD; relatively low rates have the reverse effect. Quantitative easing and tightening are additional tools the RBA can deploy to shape credit conditions. Easing weighs on the AUD, whereas tightening supports it.

Why Does China’s Economic Health Matter for the Australian Dollar?

As Australia’s biggest trading partner, China has a substantial influence on the value of the Australian Dollar (AUD). A strong Chinese economy buys more Australian raw materials, goods and services, increasing demand for the AUD and lifting its value. When Chinese growth falls short of expectations, the reverse applies. Consequently, upside or downside surprises in China’s growth figures often feed directly into the Australian Dollar and its currency pairs.

Why Do Iron Ore Prices Influence the Australian Dollar?

With China its principal destination, iron ore is Australia’s biggest export and accounts for $118 billion annually, according to 2021 data. Its price can therefore influence the Australian Dollar. Rising iron ore prices generally lift overall demand for the currency and support the AUD, while falling prices tend to have the reverse effect. Higher prices also make a positive Australian trade balance more likely, providing another source of support for the AUD.

Why Is the Trade Balance Important for the Australian Dollar?

Another influence on the Australian Dollar is the trade balance: the difference between a country’s export earnings and its spending on imports. Strong overseas demand for Australian exports can lift the currency’s value through the excess demand generated by foreign buyers relative to Australia’s spending on imported goods. A positive net trade balance thus strengthens the AUD, while a negative balance has the reverse effect.