AUD/USD is trading at $0.9208, down 0.9%, after the Chinese manufacturing sector took a drop in July. The latest HSBC manufacturing purchasing managers index (PMI) came in at 47.7, whereas economists were expecting a level of 48.6. Manufacturing is now at an 11-month low. This dragged the Australian dollar lower, as Australian growth is very dependent on a strong Chinese economy. Over the past few years Australia has exported a large quantity of minerals to China, but now that the Chinese manufacturing industry is losing pace dealers fear the slowdown will be felt in Australia.
The level of inflation in Australia remained unchanged at 0.4% in June, although economists were expecting it to rise to 0.5%. This shows us that domestic demand for goods and services is not particularly strong. The Reserve Bank of Australia has set interest rates at an all-time low of 2.75% in an effort to stimulate growth, and since the rate of inflation is not too high this could leave the door open to additional rate cuts.