Article by AlgosysFx Forex Trading Solutions
Further worrying signs of a slowdown in the world’s three largest economies are foreseen to enhance demand for the US dollar opposite the Australian dollar today. Manufacturing gauges released earlier from both China and Japan revealed that weak demand continues to hamper factory conditions in both countries. Today, the US is awaited to release its own update on the manufacturing sector, and analysts say that the report is once again seen to disappoint.
The Institute for Supply Management is set to discharge the Manufacturing PMI for September, and many analysts are looking to see if the sector broke out of its three-month slump. Nonetheless, the markets received a forewarning last Friday when the Chicago PMI fell into a contraction for the first time in three years last month, with the index falling from 53.0 points to 49.7 points. The new orders index dropped 7.4 points to reach its lowest level since July 2009, just after the end of the recession. Employment also dropped to its weakest level in two-and-a-half years. As such, economists are eyeing today’s report with pessimism. Factory conditions across the US are projected to have contracted for the fourth consecutive month, with the Manufacturing PMI to edge up from 49.6 points to 49.8 points, still below the 50-level. Continuing debt turmoil in the Euro Zone and softening growth in other key economies are deterring foreign demand while the sluggish jobs market and uncertainty over the fiscal cliff are dampening domestic demand.
Elsewhere, the slowing global economy is likewise taking its toll on manufacturing conditions. Chinese manufacturing activity contracted for the second consecutive month in September according to official data, falling short of expectations of a modest expansion. The PMI came in at 49.8 points, a slight improvement from 49.2 points in August, but still failing to meet median forecasts of a rise to 50.2 points. China’s manufacturing sector has struggled as the country’s economy negotiates a slump that began last year. Global woes surrounding the European debt crisis and a weak US economy still suffering from high unemployment have been a drag on exports. Economic growth slowed to 7.6 percent in the second quarter to record its bleakest result in three years, and with various data continuing to disappoint, growth has likely slowed further in Q3.
The same story can be said for the world’s number 3 economy. A Bank of Japan survey revealed that falling export demand amid slowdowns in China and Europe is also taking its toll on Japanese manufacturers’ moods. The Tankan Manufacturing Index declined from -1 to -3 points in the third quarter to register its fourth consecutive negative reading. Exports have fallen for three months, plunging 22.9 percent in August to the European Union and 9.9 percent to China. Export growth is further threatened by a continuing row between Japan and China over islands in the East China Sea. With the gloom and doom presented by the global economy, pared risk appetites are presumed to strengthen the Greenback today, warranting a short position for the AUD/USD trades.
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