The AUD & NZD Climb On Stimulus Possibility After Chinese Manufacturing Misses

Tuesday morning found volumes on the light side with Japan on holiday. The yen rose further this week after the U.S. Treasury on Friday put Japan on a new currency monitoring list with four other countries that have large trade surpluses with the United States. The Japanese yen gained 26 points against the falling greenback to 106.15 and against the euro the currency is trading at 122.46 falling 29 points. The greenback has fallen since mid-March when Federal Reserve Chair Janet Yellen signaled the Fed would proceed cautiously with further rate increases given global risk and domestic inflation stuck below the central bank’s 2 percent goal. (CNBC)

The dollar rose on Monday from its biggest weekly fall in more than seven years against the yen but softened against other major currencies, in particular the euro, which was helped by stronger German manufacturing data.

Worries over Japanese policymakers’ inability to stem the yen’s rise pushed the dollar to an 18-month low of 106.14 yen in the first hours of Asian trade. It later bounced to 106.78 yen, up 0.4 percent on the day.

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Finance Minister Taro Aso was quoted in Japanese media over the weekend as saying he viewed the yen’s strength as “extremely concerning,” stoking speculation the Bank of Japan might intervene to stem the currency’s rise.

Remaining in Asia, the RBA is still meeting at this writing and the Aussie has climbed to 0.7704 gaining 36 points as most traders believe that Glenn Stevens will hold rates and policy following cues set by global banks over the last weeks.  Jeremy Stretch, head of currency strategy at Canadian Imperial Bank of Commerce, said the RBA likely wouldn’t cut rates for fear of encouraging more borrowing by already overleveraged consumers.

Dealers said heavy positioning in the Aussie makes it highly sensitive to the RBA decision, with some forecasting a gain or loss of 2 per cent depending on the outcome.

“Leveraged funds are now long AUD to the tune of $4.6 billion, the most since September 2014,” noted ANZ in a note.

A lack of liquidity could exacerbate any move with Japanese markets closed until Thursday for Golden Week.

The New Zealand dollar edged up for the fourth consecutive session, rising to 0.7047 from 0.7024.  The Tasmania currencies climbed on hopes of additional stimulus from the PBOC after additional lackluster Chinese data hit the headlines.  Activity in China’s manufacturing sector expanded for the second month in a row in April, but only marginally, an official survey showed on Sunday, raising doubts about the sustainability of a recent pick-up in the world’s second-largest economy.

The official Purchasing Managers’ Index rose to 50.1 in April, easing from March’s 50.2 and barely above the 50-point mark that separates expansion in activity from contraction.

Analysts polled by Reuters had predicted the reading would improve to 50.4, after upbeat March data fueled hopes that the country’s prolonged economic slowdown was easing. The findings were “a little bit disappointing,” Zhou Hao, senior emerging market economist at Commerzbank in Singapore, wrote in a note. “To some extent, this hints that recent China enthusiasm has been a bit overpriced and the data improvement in March is short-lived.”