With lingering questions on how much of an impact China’s reopening will have on the global economy, there’s likely to be increased focus on leading economic indicators from the country. Foremost among them are PMIs, since they are the freshest data, and give insight into economic trends. If the economy is ramping up, purchasing managers are among the first to see the increase in demand.
In the case of commodity currencies, like the CAD, AUD and NZD, but also JPY and even the Euro in the current circumstances, PMI are extra important. There is anticipation for when Chinese firms will ramp up buying of materials to meet demand. That includes commodities, but also machinery from Japan and Europe. Given the geopolitical tensions around semiconductors in particular, Chinese demand could grow unevenly.
The context is also important
The other aspect is that China has been closed for a week for the lunar new year, and that is likely to be reflected in PMI figures. The market could react to the return of Chinese trading over the weekend, which could create a relative impact on how it perceives the PMI figures.
Parsing the two different PMI readings could also have implications for commodity currencies, in particular the AUD and CAD. For the latter, the energy situation in China is more of a concern, naturally. Last year, China experienced droughts that contributed to rolling blackouts. With industrial activity expected to increase in the coming months, along with travel, there is expectation that China could lead crude prices higher. Indications of this will likely be visible first in growing PMIs
The diverging measures
The official (NBS) and the private (Caixin) PMI surveys are expected to diverge, with the latter returning to expansion unlike the former. The NBS survey follows a smaller group of larger, mostly state-owned companies that have been facing increased domestic headwinds. But, as far as forex is concerned, they represent the larger buyers of commodities.
The Caixin survey has a broader reach and includes a lot smaller businesses with an export focus. It’s a better gauge of the domestic economy, and global consumer demand. Therefore, it could be more relevant for the NZD than the AUD.
 What to look out for
Chinese NBS Manufacturing PMI is expected to improve, but as mentioned remain firmly in contraction at 48.0 compared to 47.0 prior. The non-manufacturing component is also expected to remain in contraction, but have a significant improvement to 48.0, up from 41.6 prior. This is seen as reflecting the improving conditions of the service industry following the complete lifting of covid restrictions.
Caixin Manufacturing PMI is expected to do much better, jumping firmly into expansion at 52.0, up from 49.0 prior. Caixin Services PMI is expected to reflect the same phenomenon seen in the NBS figures, also jumping to 52.0 from 48.0 prior.
