In this Asian Focus Video Andrew Robinson, FX Analyst for Saxo Capital Markets in Singapore reviews the latest Reserve Bank of Australia rate decision and the most recent series of PMI releases from across the Asian region with the focus (particularly for China) increasing on PMI services data. He also takes a look at other Australian data releases this week.

Global slowdown impacts Asian economies
Concerning PMI data from the region’s manufacturing sector for June recent numbers were generally quite soft and a testimony to how the global slowdown is impacting the Asian economies, says Andrew. Australia saw a slight improvement but the figure is still below the 50 threshold and has been since January this year. China is still surprisingly above 50 but lower than the previous month. The private HSBC report from China remains below the threshold at 48.2 but both reports are showing the same kind of tendencies, says Andrew.

Some strength in service sector
On service PMIs they are not monitored in Asia as closely as in Western economies. This data will however become increasingly important as Asian nations try to wean themselves off their export oriented manufacturing base and move to more service based economies. For China alone the latest data was surprisingly strong at 56.7 from 55.2. This suggests there is some strength within the service sector of the Chinese economy and maybe, just maybe, this will prevent it from hitting a hard landing if the manufacturing side continues to slide, says Andrew.

RBA neutral
The Reserve Bank of Australia kept interest rates unchanged at 3.5 percent, as expected and the statement thereafter was very neutral. In fact, it was probably the most neutral seen in the last 3-4 months, says Andrew. At this stage the slowdown in China remains a key concern though the biggest shocks are seen coming from the Eurozone. That side looks bleak and that’s probably why the statement was so non-committal today, says Andrew. Of particular note was the mention of the continued strength of the AUDUSD, which was not covered in the previous statement, with threats to this and the economy as a whole seen coming from abroad.

Australian retail sales to rebound and trade deficit to widen
Also concerning Australia, retail sales and trade data due later this week are in focus. Retail sales are seen showing a rebound from the previous month’s -0.2 percent to + 0.2 percent and the trade deficit is expected to widen to close to AUD 500 mn from 200 mn in the previous month. On the latter, as noted by the RBA the terms of trade are still quite high, though off their peak, and it’s the import costs for natural resources and other imports which are the key factor. China’s import numbers are still quite strong so that side of the equation is okay and it’s the import side which will cause the larger deficit, says Andrew. There’s still a mismatch (between mining and resources and the rest of the economy) but for now things are ticking along, he says.

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