The closely-watched Caixin-Market China Manufacturing Purchasing Managers' Index (PMI) fell from 47.8 in July to a preliminary 47.1 in August; it's lowest in more than six years, and weaker than the forecast reading of 48.1.



The Australian dollar fell against its US peer on Friday after a Chinese manufacturing index came in weaker than forecast, prompting fresh concerns about the strength of the world's second-largest economy and Australia's largest trading partner. The AUD/USD fell more than 60 pips to an intraday low of $0.7288 on Friday after the report was released, sliding from $0.7336 beforehand.



China has an economic growth target of 7% this year; however, even that rate may be hard to achieve, with several other economic indicators also pointing to weaker activity.



The implications for China's trading partners, including Australia who is heavily reliant on Chinese demand, could be extensive. Australia's export sector is already under massive pressure with commodity prices trading sharply lower than a year ago.



Moreover Japan's factory sector continued to expand in August, according to an industry gauge, raising hopes that the economy will return to growth this quarter. Markit's Flash Manufacturing Purchasing Managers' Index (PMI) rose to 51.9 in August from last month's final reading of 51.2, where a figure above 50 signals an expansion in activity, while a reading below 50 indicates a contraction.



Japan's manufacturing sector has benefited hugely from a rapid weakening in the Japanese yen over the last few years, making domestic production more competitive and increasing firms' profitability.