Surprise Improvement in Chinese Factory Activity Sets Bullish Weekly Tone for Aussie, Kiwi; Yen Up on Risk Concerns

Risk factors were primarily responsible for the movement in the safe-haven Japanese Yen, while the commodity-linked Australian and New Zealand Dollars were underpinned by sharply higher crude oil prices. The Aussie and Kiwi were also supported by a surprise improvement in Chinese manufacturing activity.
James Hyerczyk
Global Currencies

The Asia Pacific currencies posted solid gains last week with the strength fueled by a number of factors including a weaker U.S. Dollar, optimism over a U.S.-China trade deal, upbeat China economic data, higher commodity prices and central bank comments.

Risk factors were primarily responsible for the movement in the safe-haven Japanese Yen, while the commodity-linked Australian and New Zealand Dollars were underpinned by sharply higher crude oil prices.

The Aussie and Kiwi were also supported by a surprise improvement in Chinese manufacturing activity. The latest data out of China, the world’s second biggest economy, set the tone for the two currency markets early in the week. Chinese factory activity expanded at the quickest pace in almost three years in November, a private business survey showed on Monday, following upbeat official data over the weekend.

Japanese Yen

The Dollar/Yen finished lower, posting a potentially bearish closing price reversal top in the process. Most of the damage took place on December 2 and December 3.

Last week, the USD/JPY settled at 108.575, down 0.934 or -0.85%.

The Dollar/Yen hit a six-month high on Monday after an unexpected rebound in Chinese manufacturing activity raised hopes of a brighter outlook for the world economy.

The rally didn’t last long, however, as safe haven demand drove investors into the Japanese Yen after U.S. President Donald Trump said he would restore tariffs on some imports from Brazil and Argentina, while a drop in new U.S. factory orders in November to their lowest since 2012 deepened the decline.

The Dollar/Yen fell even further on Tuesday after U.S. President Donald Trump said a trade deal with China might have to wait until after the 2020 U.S. presidential election.

The Dollar/Yen hits its low for the week after Bloomberg News reported, citing people familiar with the talks, that China and the U.S. were getting close to reaching a trade deal.

Australian Dollar

The upbeat China PMI data gave the Australian Dollar a boost on Monday and prices consolidated in the high end of its weekly range the rest of week.

As expected, the Reserve Bank of Australia (RBA) decided to leave it benchmark interest rate unchanged at 0.75% on Tuesday. Additionally, RBA policymakers reiterated that it “continues to monitor developments, including the labor market”, and secondly, “the Board is prepared to ease monetary policy further if needed”.

The RBA also said, “economy appears to have reached a gentle turning point”, “the main domestic uncertainty continues to be the outlook for consumption”, and “the unemployment rate…is expected to remain around this level [5-1/4 percent] for some time.”

Last week, the AUD/USD settled at .6841, up 0.0082 or +1.21%.

New Zealand Dollar

The New Zealand Dollar hit a four-month high last week. Early in the week, the risky currency was driven higher by the surprise Chinese PMI data and by talk of fiscal stimulus to boost the New Zealand economy.

Later in the week, the Kiwi climbed after softer-than-expected banking reforms led to a reduction in rate-cut expectations.

The Reserve Bank of New Zealand (RBNZ) lifted bank capital requirements, but not as much as some investors had feared. The long implementation time has also reduced expectations that monetary easing might be needed to offset the hike’s tightening effects.

Last week, the NZD/USD settled at .6567, up 0.0145 or +2.26%.

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