Yuan, Australian currencies gain on upbeat China factory survey

The Chinese yuan is supported by unexpected improvement in Chinese factory activity in March 2019. — Reuters pic
The Chinese yuan is supported by unexpected improvement in Chinese factory activity in March 2019. — Reuters pic

TOKYO, April 1 — A surprise improvement in Chinese factory activity supported the yuan and Australian dollar today, and provided a broader boost to global investor confidence, helping the dollar gain against the safe-haven yen.

Factory activity in China unexpectedly grew for the first time in four months in March, an official survey showed yesterday, a sign government stimulus may be starting to take hold in the world's second largest economy.

The official Purchasing Managers' Index (PMI) rose to 50.5 in March from February's three-year low of 49.2, beating economists' median forecast of 49.5.

That pushed the Australian dollar, often seen as an investment proxy for Chinese economic prospects, 0.15 per cent higher to US$0.7107.

The Chinese yuan also gained 0.2 per cent in offshore trade to 6.711 to the US dollar.

The US dollar rose 0.15 per cent to 110.93 yen, extending its advance from the 1-1/2-month low of 109.70 it touched a week ago.

“It seems like policy support is working to underpin the Chinese economy,” said Ayako Sera, market economist at Sumitomo Mitsui Trust Bank.

“But while policy steps will likely stem a further slowdown, they are unlikely to accelerate the economy. If markets got carried away with pricing in too much optimism, we could see some set-back down the road,” she said.

Not all data in the region was rosy, with the Bank of Japan's tankan showing a deterioration in business sentiment among big Japanese firms and with South Korea's trade shrinking.

The euro stood little changed at US$1.1222 having slid to a three-week low of US$1.1210.

Dutch central bank Governor Klaas Knot, one of the most prominent hawks on the European Central Bank's rate-setting committee, said it was clear that interest rates would be lower than before the crisis even after policy normalisation.

The British pound struggled at US$1.3020, within sight of Friday's near-three-week lows of US$1.2977 and not far from last month's low of US$1.2945.

Britain's exit from the European Union was in disarray after the defeat of Prime Minister Theresa May's proposed Brexit deal left her under pressure from rival factions to leave without a deal, go for an election or forge a much softer divorce.

Traders also say investors have scaled back trading of the pound because it has become so difficult to predict amid the constant and sometimes arcane political developments.

“Today will be another interesting day in parliament,” said Seema Shah, senior global investment strategist at Principal Global Investors in London.

“If MPs are able to form a majority around a few of the motions - most likely the permanent customs union motion or a 'people's vote' on the agreed deal, we could see sterling re-strengthen on revived hopes of a soft Brexit.”

Positive risk sentiment helped boost emerging market currencies.

The Mexican peso gained 0.4 per cent to 19.347 to the US dollar while the South African rand gained more than 1.2 per cent to 14.317 per US dollar.

The Turkish lira eased 0.9 per cent to 5.591 per US dollar after President Tayyip Erdogan's ruling AK Party was set to lose control of the capital Ankara for the first time in a local election and he appeared to concede defeat in the country's largest city, Istanbul. — Reuters

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