China Services PMI sees AUD/USD volatile before RBA decision

Created using Marketscope 2.0 (1 Minute Chart)

THE TAKEAWAY:Markets may eye the RBA rate decision for currency yield guidance before reacting to improved Chinese Services PMI

The HSBC Services PMI for January came in higher than previously at 54.0 compared with 51.7 in December and 52.1 in November.

Although the HSBC Services PMI is not China's most important economic indicator (Services are 43.7% of GDP composition versus 46.6% for Manufacturing), a PMI of 54.0 certainly adds to the case that China's economy is staging a recovery. January saw positive GDP data released and the start of February saw the HSBC Manufacturing PMI print better than expected signaling an expansion in the largest component of the Chinese economy.

The currency pair to watch going into this announcement was the AUD/USD which saw a sharp gain followed by an equally large fall and ended up largely unchanged. With the RBA rate decision fast approaching, a full reaction to the Chinese data may come after markets receive guidance on interest rates at 0330 GMT today.