Dollar firm on strong US data, outlook hopes hoist yuan to 6-month high
*The greenback held steady near a one-week high against the euro, at $1.1095, and just below an eight-month peak on the Japanese yen, at 110.17 yen per dollar. Against a basket of currencies it was flat.
* Moves were slight and volumes thin as Chinese New Year approaches in Asia and with U.S markets closed for Martin Luther King day on Monday.
The dollar began the week on a firm note on Monday as economic data pointed to strength right across the U.S. economy, while optimism on the outlook for China supported Asian currencies.
The greenback held steady near a one-week high against the euro, at $1.1095, and just below an eight-month peak on the Japanese yen, at 110.17 yen per dollar. Against a basket of currencies it was flat.
China’s yuan edged 0.2% higher to a fresh six-month top, while the Australian and New Zealand dollars also edged ahead.
Moves were slight and volumes thin as Chinese New Year approaches in Asia and with U.S markets closed for Martin Luther King day on Monday.
Figures on Friday showed U.S. homebuilding surged to a 13-year high in December, with retail sales also on the rise and a gauge of manufacturing activity rebounding to its highest in eight months.
Futures pricing suggests nobody thinks the U.S. Federal Reserve will cut rates when it meets at the end of the month.
The strength in the United States comes as European economic data points in the opposite direction, though with possible signs of bottoming out both there and in China.
“We’re seeing consistently strong data, still, from the United States, and that’s on the back of a boost that it will probably get from this U.S.-China trade agreement,” said Jeffrey Halley, senior market analyst for Asia Pacific at broker OANDA.
“I think the U.S. dollar will continue to outperform against the major currencies,” he said, adding he counted the chance of a Fed rate cut soon at zero. “I think the bar for a rate cut is quite high at the moment.”
China on Friday posted its slowest annual growth figure in almost 30 years, although December data showed revived business confidence and quickening factory output.
That helped the yuan to a six-month high of 6.8457 per dollar after the country’s benchmark lending rate was held steady on Monday, leading gains across Asia.
The Australian and New Zealand dollars rose about 0.2%, with emerging markets currencies also nudging ahead.
“They are catching a big tailwind from this trade deal,” said Halley. “It does imply better times ahead on the resource side and that’s why we’re seeing some strength in the Aussie.”
However caution remained as investors look to Australian jobs data due on Thursday for a crucial clue to the next move for Australian interest rates.
The Reserve Bank of Australia meets next month with widespread bushfires, and their depressing effect on already weak consumer sentiment, adding to the case for further stimulus following three rate cuts last year.
Futures are pricing a 46% chance of a rate cut when the RBA meets on Feb. 4, but that will likely shift higher if Thursday’s read on unemployment puts it higher than market expectations of 5.2%.
Similarly, the British pound sat at a week-low of $1.3000, with markets apprehensive that the Bank of England may cut rates at the month’s end – especially if business surveys this week seem sour.