The AUD to EUR exchange rate moved through some key support levels after Chinese PMI Manufacturing data shrank at the fastest pace since 2009, when the financial crisis hit economies hard.
The AUD v EUR pair was trading 0.66% lower at 0.5930 on the day as traders absorbed the data from China. The current trend in the exchange has been led by fears over the Australian economy due to the Coronavirus impact in China, whilst stagnation in the Aussie economy has met a potential change of fortunes for European growth prospects.
Woeful Chinese Manufacturing Data Was Not Unexpected
We noted yesterday that the Chinese PMI manufacturing data was likely to disappoint but awaited the numbers for clarification on how the market would react. The 50 level is always the line in the sand for global economies, where numbers above indicate expansion and numbers below show contraction. The January number for China was 50 and today’s release for February was 47.4. This was slightly better than the 46 expected by some analysts but the situation still points to a slowdown in China that could hit Australian export companies.
A slower number was expected due to large parts of the country being on lockdown from the Coronavirus, including key production regions. Official data also showed that production levels at small and medium-sized companies were only 32.8% on Wednesday. Many small factory owners are also struggling with labour shortages, due to quarantines and migrant workers not returning to the region.
The effects of the virus are likely to echo through China’s economic data for months to come which could keep a headwind on the Australian currency outlook.
Economic Data Next Week Could Be Crucial for the Market Direction
After a light economic calendar this week, next week brings some key releases that could alter the outlook for the Australian dollar and Euro currencies. The first release will be Italian Gross Domestic Product (GDP), which will highlight the country’s growth. Italy has struggled around the zero-growth level in recent quarters and last month printed a -0.3% reading. With the Coronavirus spreading into a key region of Italy in the last week, any sign that the country is nearing recession would be a headache for the European Central Bank, who have been large buyers of Italian bond debt.
Later in the week sees the Reserve Bank of Australia’s interest rate decision and also the country’s own GDP release for the fourth quarter.
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