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Aussie Edges Lower as Yuan Declines

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Aussie Edges Lower as Yuan Declines

The Aussie dollar was under pressure on Wednesday and is now consolidating in a tight range. The weakness in the Chinese yuan is drawing money out of the Aussie, as the two are seen as strong trading partners. The economic picture is mixed, as employment remains subdueed, but inflation expectations remain robust.

The yuan has weakened now for seven consecutive sessions. There is some speculation that the PBOC is buying dollars and selling yuan. On Tuesday the PBOC released figures suggesting that Chinese banks bought a record $73 bln of foreign currency in the onshore market in January reflecting clients’ demand for yuan. This represented a marked acceleration for even the heady pace seen in the second half of 2013.

The yield differential between the Aussie dollar and the US dollar moved in favor of the greenback despite weaker than expected data released in the US on Tuesday. Manufacturing continues to be weak, making the US dollar less attractive.

The Richmond Fed’s manufacturing current business conditions index dropped to -6 in February, from 12 in January, to its lowest reading since July 2013. Numbers above zero indicate expanding activity. There was a widespread decline in the region’s manufacturing sub-indexes. The shipment index fell to -6 from 14 in January. The new orders index dropped to -9 from 14. Each sub-index also stands at its lowest since July. Demand for labor deteriorated. The employment index fell to zero from 6 in December, while the workweek index fell to -5 from 8.

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The AUDUSD is hugging the 10-day moving average and momentum is turning negative. The MACD (moving average convergence divergence) index is poised to generate a sell signal. The RSI (relative strength index) moved lower with price action and is printing near 52, which is in the middle of the neutral range.

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