Commodity traders are braced for volatility ahead of the release of the Chinese NBS manufacturing report. Typically, strong Chinese manufacturing data is bullish for the Australian dollar currency, Copper prices, and Iron Ore. Other industrial metals are also likely to receive a strong boost if the report outpaces market expectations.
Chinese stocks could also react positively if Chinese manufacturing numbers outperform market expectations. The Shanghai Composite has been stuck in a tight trading range since July this year; solid Chinese manufacturing data could the bullish catalyst the index needs to break out from its five-month range.
Most economists are expecting a 52.2 NBS manufacturing PMI reading on Thursday, which is an improvement on the 51.1 reading from last month. The IMF recently released a report stating that the Chinese economy is likely to be the only major economy to avoid falling into economic contraction in 2020.
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Fitch ratings has also recently raised its economic forecast for Chinese GDP in 2021. The ratings agency now forecasts 8.0 percent annual GDP growth for the Chinese economy in 2021, instead of 7.7% growth.
Aside from the obvious economic benefits to China’s economy that is associated with strong manufacturing numbers, the Australian economy and Australian dollar tend to do well when the world’s second-largest economies manufacturing sector is in a state of expansion.
The Australia dollar is currently trading at multi-year highs against the greenback and could easily break above the $0.7700 level on better-than-expected manufacturing data from the Chinese economy this week.
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The price of Iron Ore has been on a major upside move since May this year, with the metal now trading at levels not seen since May 2013. The metal has risen close to 60% since breaking above its yearly open price in June, close to the $93.00 level.
Even recent data that showed a drop-in demand for steel has failed to dent optimism towards the world most widely used metal. Iron ore has quickly recovered, following data this month that showed a drop-in steel inventories in China.
From a technical perspective Iron Ore is looking increasingly comfortable above the $155.00 level and could easily go onto to reach the 2011 trading high, just above the $185.00 level.
Copper is another metal that is recently gaining a lot of attention from traders and investors lately. Copper prices are undoubtedly on the rise, and currently trading at seven-year highs, with the increasingly popular metal posting strong double-digit gains since the March 2020 lows.
According to analysts, mining production disruption, interruptions to trade flows, and underlining demand for the metal during the COVID-19 crisis have all contributed to the rise in copper prices.
Going forward, the technicals are suggesting further upside to come, with few signs of a meaningful price top yet. An acceleration in Chinese manufacturing data is likely to be a positive catalyst for copper prices going into next year.
