Australian manufacturing activity resumed its contraction in December following a brief momentary expansion in November with the AIG manufacturing PMI gauge slipping 3.2pts to 46.9. While numerous factors continue to contribute to the sectors decline it’s clear that the high level of the Australian Dollar, something that undermined the performance of non-mining sectors over the past 5 years by reducing Australia’s international competitiveness, is largely to blame for ongoing weakness in the sector. Demonstrating this point between 2001 to 2009, a period when the AUDUSD averaged .7071, the AIG index averaged 52.27. From 2009 to today, a time when the AUDUSD has averaged .9416, the PMI gauge has averaged just 46.41. Cold, hard numbers that demonstrate the impact the currency has on manufacturing and other non-mining sectors of the economy. With manufacturing undershooting badly all eyes will be on the services and construction gauges, those that are far more important to Australia given the need for economic rebalancing this year, to see whether they too continued to struggle heading into 2015. For all those who would like to read the AIG report in full click here.