Daily Morning Report 03.05.2016

The Aussie plunged after the central bank cut its official cash rate citing a need to spur the economy and encourage a weaker exchange rate, with the move coming after a downbeat Caixin manufacturing PMI survey on China.

AUD/USD traded at 0.7588, a drop of 1.04%, while USD/JPY changed hands at 105.98, down 0.40%. Markets in Japan are shut for Constitution Day.

The RBA cash rate decision saw a surprise 25 basis point cut to a record low 1.75%.

Earlier, the Caixin Manufacturing PMI for April came in at 49.4, below the 49.9 expected.

“The Caixin China General Manufacturing PMI for April came in at 49.4, down 0.3 points from March’s reading. All of the index’s categories indicated conditions worsened month-on-month, with output slipping back below the 50-point neutral level. The fluctuations indicate the economy lacks a solid foundation for recovery and is still in the process of bottoming out. The government needs to keep a close watch on the risk of a further economic downturn,” Caixin Insight Group chief economist He Fan said.

At the weekend, the China April CFLP manufacturing index came in at 50.1, below expectations, but hanging onto expansion territory. The CFLP service PMI eased to 53.5 from 53.8.The semi-official manufacturing PMI from the China Federation of Logistics and Purchasing and National Bureau of Statistics slid from the first over-50 reading in eight months in March.

Australia said building approvals for April jumped 3.7%, compared with an expected drop of 3.0% month-on-month, and private house approvals for March gained 2.6%, after a fall of 1.2% in the previous month.

The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was down 0.08% to 92.46.

Elsewhere, John Williams, president of the San Francisco Fed, said that the long-term view on global interest rates remains below trend even after central banks start hiking.

Overnight, the dollar remained at eight-month lows against the other major currencies on Monday, after data showed that U.S. manufacturing activity expanded at a slower than expected rate in April adding to concerns over the strength of the economy.

The Institute for Supply Management said its index of manufacturing activity fell to 50.8 last month from March’s 51.8. Analysts had expected the factory index to tick down to 51.4.

The yen remained broadly supported after the Bank of Japan chose on last Thursday to hold its monetary policy, defying market expectations for additional monetary easing.

The decision came a day after the Federal Reserve kept interest rates on hold last week and indicated that any future interest rate hikes would be data dependent.