How to Trade on Chinese Manufacturing

Beijing, China
Sam Diephuis | Getty Images
Beijing, China

A positive manufacturing report in China should lift the Australian dollar, this strategist says.

Sunday night will bring plenty of currency-moving news, not least new manufacturing data from China. Andrew Busch, global currency and public policy strategist for BMO Capital, has a plan to trade on the news.

"I've been a big bear on China, but I think this is an opportunity," he says, pointing out that the market overall has been bearish on both China and the Australian dollar.

Sunday night will bring the HSBC Flash PMI report, which covers a range of small Chinese manufacturers, Busch says. "I think it's more indicative of what's going on in China, and it's been negative, or below 50, for the last three months in a row," he told CNBC's Simon Hobbs.

Busch's plan: if the PMI comes in above 50, he wants to buy the Australian dollar and sell the U.S. dollar, and if it's below 49, he wants to do the reverse.

How should you choose? Market expectations are "ripe for a little torque here to change the opinion on a better number," Busch says, noting that investors have built in expectations of multiple interest rate cuts in Australia. So he is arguing for the bullish trade.

Busch wants to buy the Australian dollar at 1.0375 and set a stop at 1.0290. He is looking for a move to 1.0630.

Todd Gordon, co-head of research and trading at Aspen Trading Group, has looked at a variety of technical factors affecting the Australian dollar, and he likes the trade too.

You can watch the discussion on this video.



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