AUD Nears Key Level Ahead of China PMI

The US dollar shook off dovish comments in the FOMC minutes and USD/JPY cracked 118.00. The pound was the best performer on the day on the MPC minutes while the yen lagged. The focus now shifts to the Australian dollar with China's PMI up next.  In today's Premium trade, we raised the question of trading today's GBP bounce vs yesterday's EUR ascent. We issued 2 trades and 3 charts in the pair, adding them to the existing GBPCAD trades.

0.8542 is the key level in AUD/USD. Not only is that the November low, it's also 50% of the 2008-2011 rally. With spot at 0.8618, that's a comfortable cushion but stops below Wednesday's session low of 0.8602 could cascade in a quick move lower.

If that happens in the day ahead, the catalyst would almost certainly be the HSBC China PMI due to be 0145 GMT. The consensus is for a slip to 50.2 from 50.4 but a fall below the 50 threshold would spark some worries.

The Fed mentioned fears of a Chinese slowdown in the FOMC minutes and that could become a mainstream fear. Concerns about China have been falsely raised so many times in the last 6 years that traders have tuned it out. The market may have grown complacent and often that's the time to be most on guard.

Xinhua reported on the weekend that Chinese electricity consumption was up just 3.1% y/y in October. There have been some efforts to save energy but it raises eyebrows in an economy that's supposedly growing close to 7.0%.

Other numbers to watch in the hours ahead include Japanese trade data at 2350 GMT. Exports are expected up 4.5% and imports up 3.4% but after the dismal forecasting effort from economists in the GDP data, the market will be skittish. Some estimates on imports are as low as -3.0%.

It will be interesting to see how the yen reacts to poor data. We're likely nearing the point where bad news also hurts the yen, at least domestic bad news.