China manufacturing data hits $A

THE Australian dollar was almost half a US cent lower after Chinese economic data showed its manufacturing sector is expanding at a slower pace.

On Friday, the dollar was trading at US102.36¢, down from US102.76¢ on Thursday. A Forex.com research analyst, Chris Tedder, said the Australian dollar fell to its intraday low after the release of the data at midday but gained ground during the afternoon.

"Price action in the Aussie highlighted the market's initial shock to the Chinese data," he said.

"Overall, the figures aren't overly concerning because they still suggest that China's manufacturing sector is expanding.

"Furthermore, when we look at the trend of sentiment in this sector, we see it holding in expansion territory for the past three months."

Mr Tedder said there had been good demand recently for the Australian dollar when it dropped towards US101.80¢, but if it broke below that level it could drop further and head towards parity.

Key economic data during the offshore session on Friday night will include US manufacturing figures from the Institute of Supply Management.

Elsewhere, the Australian dollar was at 94.71 Japanese yen, down from Thursday's close of 94.92 yen, and at 78.26 euro cents, up from 78.17 euro cents.

Meanwhile, the Australian bond market was slightly firmer.

A Westpac strategist, Damien McColough, said it seemed as though the market was awaiting Tuesday's interest decision by the Reserve Bank, which is widely expected to keep the cash rate on hold at 3 per cent.

"It's really been a week of marking time. [Thursday's] capex [capital expenditure] number was the one everyone was waiting for. I think there was something in it for everybody, but broadly speaking it takes next Tuesday off the agenda."

The March 10-year bond futures contract was trading at 96.69 (implying a yield of 3.31 per cent), up from 96.68 (3.32 per cent) on Thursday. The three-year contract was at 97.27 (2.73 per cent), up from 97.26 (2.74 per cent).