China’s factory activity remains under pressure in June, while the services sector posts modest growth, easing investor worries and supporting the Australian Dollar.
The latest economic indicators from China reveal a mixed picture of recovery. Released on Monday, China’s official NBS Manufacturing PMI edged higher from 49.5 to 49.7 in June, but still fell short of the 50-mark that separates contraction from expansion. In contrast, the Non-Manufacturing PMI, which tracks the services sector, rose from 50.3 to 50.5, signaling slight but continued expansion.
Manufacturing Remains Subdued Amid Tariff Headwinds
Despite the modest uptick, China’s manufacturing industry remains in contraction for the second consecutive month, with export activity notably weak. June marked the 14th straight month of declining export orders, underscoring the pressure from ongoing US tariffs. The New Export Orders Index, while improving slightly, remained below the 50 threshold at 48.3.
Small businesses were hit hardest. The Small Enterprise PMI dropped to 47.3, while larger enterprises showed resilience, with a reading of 51.2. This divergence suggests that US tariffs disproportionately burden smaller manufacturers, especially in export-heavy coastal regions.
Services Sector Expands as Domestic Demand Holds
In contrast, the services sector showed resilience. June’s NBS Non-Manufacturing PMI came in at 50.5, reflecting stable domestic demand and stronger sentiment in areas such as logistics, travel, and finance. The data suggests China’s internal economy continues to offer pockets of strength even as global demand softens.
Trade Agreement Hopes Boost Sentiment, But Tariffs Stay
Market sentiment was buoyed by fresh trade deal headlines between the US and China. According to reports, a partial agreement was signed on June 25, with China promising to approve certain exports and the US hinting at easing some restrictions. However, key tariffs remain in place, including a 30% tariff on Chinese imports and 20% on fentanyl-related goods.
Statements from US Treasury Secretary Scott Bessent downplayed the scope of the agreement, signaling that many trade barriers are unlikely to be removed soon. Still, the deal has sparked cautious optimism that broader negotiations may follow.
AUD/USD Holds Ground as Risk Sentiment Improves
The Australian Dollar (AUD/USD) remained firm amid China’s data release, reflecting traders’ appetite for risk assets. After dipping to a post-data low of $0.65365, the pair rebounded to trade at $0.65409 at the time of writing.
Australia’s economic ties with China make the AUD highly sensitive to Chinese macro data. Signs of economic stability in China, particularly in services and domestic consumption, tend to support the Aussie.
What to Watch This Week
Traders should closely monitor the following events, which could shape short-term market direction:
- July 1: Caixin Manufacturing PMI – More reflective of China’s private sector.
- July 3: Caixin Services PMI – Gauges broader consumer and service-sector trends.
- July 9: Potential escalation of US-China tariffs if no further agreement is reached.
Additionally, price movements in the Hang Seng Index, which dipped 0.43% intraday to 24,179, highlight market sensitivity to geopolitical and trade developments.
🔎 Key Takeaways:
- China’s manufacturing PMI remains in contraction at 49.7, services PMI climbs to 50.5.
- New export orders decline for the 14th straight month, highlighting tariff impact.
- Small businesses struggle, while large enterprises show strength.
- AUD/USD holds gains, supported by improving sentiment and stable services data.
- US-China trade tensions remain a wildcard as markets await further announcements.
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