In this week’s Asia Focus particularly Australia and China are in the spotlight. Andrew Robinson, correspondent Saxo Capital Markets, looks at recent macro data and the outlook for interest rates in these countries, as more signs of slowing growth emerge.

Australia’s PMI index fell shockingly to 43.4 in July from 52.9 in June, making it the fourth time in five months the index was below 50, the dividing line between expansion and contraction. The July reading means the index is now at the lowest level since June 2009 and the Australian dollar, which has recently risen to record levels against the U.S. dollar, is largely to blame. The stronger AUD is detrimental to Australian manufacturers as it plays a huge role in determining the amount of manufactured goods leaving the shores of Australia. Recent Retail Sales data, which declined unexpectedly in July, was further confirmation of an economy hardly running at full speed, thereby raising expectations of rate cuts rather than previously expected rate hikes. More dovish than expected comments from the Reserve Bank of Australia, which met this week, increased such expectations and the market has already priced in cuts of up to 75 basis points by the end of the year.

In China too, official manufacturing PMI also declined in July to the lowest level since February 2009. The decline was however less than expected and the index still remains above 50, thereby indicating limited economic expansion. With inflationary pressures still very much evident however, the People’s Bank of China is expected to maintain its track of rate hikes. In a recent statement the bank also ranked interest rates at the top of its list of mechanisms to curb inflation and the market therefore still expects one to two rate increases before the end of the year.

In Japan the rhetoric on central bank intervention to counteract the strength of the yen has taken a step up, with the Minister of Finance, Bank of Japan and Economics Minister all expressing concerns about the damaging effects of the currency's strength to its exporters. With a BOJ meeting just around the corner Asian markets remain nervous about the looming possibility of intervention.

See more of Andrew's market commentary here on TradingFloor.com