Dollar slips as China worries vanquish investor risk appetite
The U.S. dollar edged down in Asian trading on Monday, as investors’ appetite for risk evaporated against a background of downbeat Chinese factory surveys.
The Australian dollar, a proxy for China plays because of that country’s massive trade exposure to China, touched its session high of $0.7148 AUD=D4 immediately after the release of the Caixin/Markit China Manufacturing Purchasing Managers’ Index (PMI). The index edged up to 48.3 in October from 47.2 in September and showed that export orders marked their first rise since June.
But the Aussie soon pared its modest rise, and was last just a few ticks above its level in Friday’s late North American trade at $0.7140. Investors realised that taken overall, the figures still painted a bleak picture of shrinking manufacturing activity below the boom-or-bust threshold of 50 despite Beijing’s raft of stimulus measures.
The private survey came in the wake of China’s official survey on Sunday, which showed activity in its manufacturing sector unexpectedly contracted in October for a third month, fuelling fears the economy may still be losing momentum.
An interest rate decision by Australia’s central bank on Tuesday – one that analysts say is too close to call – will also be closely watched.
“Not so long ago the consensus view was that the RBA would remain on the sidelines for an extended period,” said Michael Blythe, chief economist at Commonwealth Bank.
“But a lift in mortgage rates and a low-side inflation reading reignited the rate cut debate.”
Whether the Reserve Bank of Australia cuts or not on Tuesday, the risk is that it may sound dovish in what would be an unwelcome development for Aussie bulls, analysts say.
Traders will now turn their attention to U.S. data and the all-important non-farm payrolls report on Friday. ECONUS
The U.S. dollar edged down about 0.2 percent against the yen to 120.43 JPY=, while the euro was a tad firmer at 132.86 EURJPY=R.
The Bank of Japan held interest rates steady last Friday as most investors had expected, but it quashed speculation for a surprise extension of its easing programme despite trimming its growth and price projections.
“There was some disappointment about the BOJ last week. Everybody is in wait-and-see mode, for the U.S. employment figures,” said Kaneo Ogino, director at foreign exchange research firm Global-info Co in Tokyo.
The U.S. Federal Reserve held interest rates near zero last week, but signalled that a December rate rise remained firmly in play.
Against the dollar, the common currency added about 0.3 percent to $1.1031 EUR=, maintaining some of its momentum from last week, when it bounced off a 2-1/2-month trough of $1.0896.
The dollar index, which tracks the U.S. unit against a basket of six major peers, shed about 0.2 percent to 96.753 .DXY.
Data released on Friday by the Commodity Futures Trading Commission showed the value of the dollar’s net long position jumped to $21.6 billion in the week ended Oct. 27, from $13.32 billion the week before.
That was the largest net long position since late September, after declining for three straight weeks.