Investing.com – The Australian dollar dropped on Thursday after the initial reading of HSBC’s China PMI for November just managed to hold in expansion territory.
The HSBC China November flash manufacturing PMI fell to 50, a drop from October’s final three-month high of 50.4.
“The HSBC China Manufacturing PMI moderated to a six-month low of 50.0 in the flash reading for November, down from the October final reading of 50.4,” said Qu Hongbin, HSBC’s chief China economist, said in an accompanying statement.
“New export order growth continued to ease and led to a below-50 reading for the output sub-index for the first time since May. Disinflationary pressures remain strong and the labor market showed further signs of weakening. Weak price pressures and low capacity utilization point to insufficient demand in the economy. Furthermore, we still see uncertainties in the months ahead from the property market and on the export front. We think growth still faces significant downward pressures, and more monetary and fiscal easing measures should be deployed.”
AUD/USD fell to 0.8590, down 0.31%, on the reading as the country is heavily reliant on resource exports to fuel China’s manufacturing sector.
USD/JPY traded at 118.21, up 0.22%, after the data, after trimming losses earlier on a narrower than expected trade deficit.
Japan’s October trade data showed a deficit of ¥710.0 billion, much narrower that the ¥1.186 trillion forecast, but still a 28th straight shortfall.
Overnight, the dollar traded mixed to higher against most major currencies on Wednesday despite dovish Fed meeting minutes, as markets bet that interest rates are set to rise next year, with only the timing remaining up in the air.
Monetary authorities largely agree that the economy was improving and no longer needed stimulus tools such as asset purchases, though concerns persisted that inflation expectations may be dipping, the minutes of the Federal Reserve’s October policy meeting released Wednesday revealed.
At its October monetary policy meeting, the Fed left its benchmark interest rate unchanged at 0.00-0.25% and said it was closing its monthly bond-buying program in a move widely expected by markets.
While the economy is improving, some monetary authorities want to be sure recovery remains sustained before raising interest rates, which is seen taking place in 2015, with a few voting members expressing concerns that inflationary pressures remain soft.
“Participants anticipated that inflation would be held down over the near term by the decline in energy prices and other factors, but would move toward the Committee’s 2 percent goal in coming years, although a few expressed concern that inflation might persist below the Committee’s objective for quite some time,” the minutes read.
“Most viewed the risks to the outlook for economic activity and the labor market as nearly balanced. However, a number of participants noted that economic growth over the medium term might be slower than they currently expected if the foreign economic or financial situation deteriorated significantly.”
Still, the dollar rose on sentiments that benchmark U.S. borrowing costs are headed higher regardless in 2015, as the Federal Reserve is using dovish language to gradually acclimate markets to less accommodative policy down the road as opposed to reversing course.
U.S. housing data came in strong enough to support the greenback as well.
The U.S. Commerce Department reported earlier that the number of building permits issued last month increased by 4.8% to 1.080 million units from September’s revised total of 1.031 million.
Analysts expected building permits to rise by 0.9% to 1.040 million units in October, which suppressed gold prices by stoking expectations that tighter monetary policy is on the way in roughly a year or possibly sooner.
The report also showed that U.S. housing starts fell by 2.8% last month to hit 1.009 million units from September’s total of 1.038 million units, compared to expectations for a drop to 1.025 million.
The euro continued to see residual demand from Tuesday’s ZEW Centre for Economic Research report revealing that its German economic sentiment index rose by 15.1 points to a four-month high of 11.5 this month from October’s reading of -3.6.
Analysts had expected the index to improve by 4.5 points to 0.9 in November.
In addition, the index of euro zone economic sentiment increased to 11.0 in October from 4.1 in September, above expectations for an increase to 4.3, and the better-than-expected data gave the euro a shot in the arm.
The US dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, rose 0.14% at 87.80.
On Thursday, the U.S. is to release data on initial jobless claims, consumer prices, existing homes sales and manufacturing activity in the Philadelphia region.