After a strong session on Friday, the Aussie kicked off the month on a high note rising around 0.65 percent to current levels of 91 US cents. After outperforming the greenback by 7.6 percent in June, the new month has seen the local unit race through short term resistance of 90.67 US cents this morning, rising to highs of 91.1 US cents. The likely catalyst for the last burst of energy from the local unit is the lasted PMI numbers from China, which came in slightly better than the broad based estimates we were seeing, albeit at the slowest pace in 17 months. The Purchasing Managers index declined to 51.2 in June from a previous 52.1. A reading above the 50 level denotes expansion in the sector.
Meanwhile, the US dollar price activity appears to have adopted a one-sided relationship with sentiment finishing lower for the 8th straight week. It’s no coincidence US equities have risen over 7 percent in July, whilst the US dollar continues to slide. However, it’s the cautious undertone that's not providing support for the Greenback. US investors remain perplexed as to where the broader economy is heading. On one hand we have an overall strong earnings season with the majority of US corporates releasing better-than-expected earnings, on the other, investors continue to battle with a string of economic news which shows the economic activity is growing at a slower pace amidst a switch in mood from the fed.
To add to the mix we now have the Fed Chairman throwing around phrases like “unusually uncertain” to describe the US economic outlook. Not helping the cause was Fed St Louise president John Bullard who last week feared the US economy may be heading down the deflationary road of Japan. Friday’s GDP advanced estimates underscored fears of slower growth with the US economy growing at an annual pace of 2.4 percent in the second quarter, down from a previous 3.7 percent. Economists had expected annual growth to slow at 2.5 percent. Although we have seen a strong performance from US equities, I think it’s fair to say the broader economic picture in the States remains cloudy – and the cautious undertone is not translating to any joy for the greenback. Friday’s non-farm payrolls will now be the primary focus for investors this week. The US economy is expected to show 75,000 job cuts in the month of July against a previous 125,000 cuts.