The Chinese yuan yesterday led commodity currencies higher against the US dollar as investors lapped up risky assets on growing expectations of a strong Chinese economic rebound.
An index of blue-chip Chinese shares surged to its highest in five years as traders bet on a revival in China, pushing the yuan to its highest levels since March 18 against the US dollar.
“The economic recovery process looks encouraging [and] looks likely to sustain while the lack of harsh trade headlines has at least eased concerns among investors for now,” Commerzbank AG strategist Zhou Hao (周浩) said.
A revival in Chinese economic activity bodes well for Australia, as well as Europe, which counts Beijing as its biggest trading partner.
The euro rose 0.5 percent to US$1.1303 to a two-week high after data showed that orders for German industrial goods rose by 10.4 percent in May, rebounding from their biggest drop since records began in 1991 the previous month.
The Australian dollar rose 0.4 percent to US$0.6975 following a 1.2 percent gain last week, with the market focused on a Reserve Bank of Australia policy meeting today.
“The markets are focused on other currency pairs, like the Australian dollar, which is still in a clear uptrend against the US dollar due to the rise in copper prices,” Mizuho Securities Co chief currency strategist Masafumi Yamamoto said.
The broad recovery in risk appetite pushed the US dollar lower. It was already grappling with a steady rise of COVID-19 cases in the US that has prompted investors to cut their exposure to the US dollar in the past few weeks.
Against a basket of currencies, the greenback edged 0.4 percent down to 96.82, its lowest since July. 2.
Goldman Sachs Group Inc revised its economic projections for the US economy down to a 4.6 percent contraction this year versus a previous estimate of minus-4.2 percent.
“The healthy rebound in consumer services spending seen since mid-April now appears likely to stall in July and August as authorities impose further restrictions to contain the virus spread,” Goldman analysts said in a note published on Saturday.
However, the analysts said they still expected growth of 5.8 percent next year and now project that unemployment will be at 9 percent at the end of this year, down from the previous estimate of 9.5 percent.
Sterling moved slightly higher to US$1.2509 amid reports that British Minister of Finance Rishi Sunak plans to raise the property tax threshold and temporarily cut the value-added tax in the hospitality sector.
The New Taiwan dollar is on the verge of overtaking the yuan as Asia’s best carry-trade target given its lower risk of interest-rate and currency volatility. A strategy of borrowing the New Taiwan dollar to invest in higher-yielding alternatives has generated the second-highest return over the past month among Asian currencies behind the yuan, based on the Sharpe ratio that measures risk-adjusted relative returns. The New Taiwan dollar may soon replace its Chinese peer as the region’s favored carry trade tool, analysts say, citing Beijing’s efforts to support the yuan that can create wild swings in borrowing costs. In contrast,
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