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Asian Session – Dollar lower on risk-off after weak China manufacturing PMI

Asian equity markets opened lower on Monday after weaker-than-expected China manufacturing PMI data on Sunday. The official manufacturing PMI in China was unchanged at 49.8 in October from a month earlier. This was below expectations that it would rise to 50 and the third month in-a-row of a reading below 50, which indicates shrinking activity.

There was further evidence of Chinese manufacturers continuing to struggle with the release of the Caixin manufacturing PMI today. The private survey showed manufacturing activity declined for an eighth straight month. But at 48.3, the reading was above estimates of 47.6 and above September’s figure of 47.2.

The Australian dollar, which started Monday trading at a session low of 0.7112, jumped to 0.7134 against the US dollar after the better-than-expected Caixin PMI. But it soon fell back as the overall outlook for China’s manufacturing sector remains uncertain. The aussie was trading at 0.7140 against the greenback in late Asian session. A stronger-than-expected rise in monthly building approvals had little impact on the Australian currency.

In Japan, the final Nikkei manufacturing PMI for October hit a one-year high at 52.4, up from 51.0 in September. The figure was slightly below the preliminary estimates but shows Japanese manufacturers continuing to benefit from a weak yen.

The US dollar drifted lower against the yen in Asian session on a combination of positive Japanese data and reduced risk appetite following the weak China PMI. It touched a low of 120.25 yen as soft US personal consumption data from Friday also weighed on the dollar but it moved higher in late Asian trading to climb to 120.44 yen.

The euro was higher at 1.1043 against the dollar and also strengthened against the pound at 0.7155. Sterling was broadly steady at 1.5434 against the greenback.

In Turkey, the elections gave the ruling AKP party a mandate for forming a government without the need for coalition partners. This was a surprise result as most polls pointed to the need for a coalition government after the elections. The result should lead to a stable government and hence political stability for a country that is facing significant challenges both on the geopolitical as well as economic front. The Turkish lira rallied nearly 4% against the US dollar as it pushed the greenback down to 2.80 today from 2.91 on Friday.

This is expected to be a busy week for markets as the central banks in Australia and the UK will decide on policy, while at the end of the week the all-important US jobs report will be key for the US dollar and for the Fed’s December decision whether to raise rates.

For the remainder of the day, Final Eurozone manufacturing PMIs for October could give some hints for the strength of the Eurozone economy. Later during the US session, the Markit final manufacturing PMI as well as the same index from the ISM will shed some light on the health of United States manufacturing, which has been negatively affected by the strong dollar, according to recent reports.

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