3 reasons why tomorrow’s China PMI may disappoint

If China PMI falls below 51, AUD/USD may drop towards 0.7380. Good to short AUD/USD?

Median forecast on China manufacturing PMI at 51 in May, lower than 51.2 in April. Data due tomorrow, 31^st May at 9am (Hong Kong time).

Here are the 3 reasons why tomorrow’s China PMI may disappoint:

1. Chinese monetary authorities have been tightening the policies since 4^th quarter last year, increasing signs show that its economy may have peaked in current cycle.

2. China's growth has already taken a step back in April after a surprisingly strong start to the year, as factory output to investment to retail sales all tapered off as authorities clamped down on debt risks in an effort to stave off a potentially damaging hit to the economy.

3. Iron ore price has been falling more than 10% in May.

China manufacturing PMI for the month of May could fall below 51 amid iron ore price tumbling in this period, suggesting the factory activities slowing down, Fullerton Markets analysis shows.

Data in past four years shows AUD/USD has been moving in line with China manufacturing PMI, in other words, falling China factory PMI may encourage market to short Aussie.

Fullerton Markets Research Team

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