MARKET UPDATE

Asia FX dips on weak China data.

Most Asian currencies fell on Tuesday as Chinese service sector data pointed to more headwinds for the region’s largest economy, while the Australian dollar fell sharply after the Reserve Bank kept rates steady, as expected.

The U.S. dollar steadied near three-month highs before a slew of Federal Reserve speakers this week. While the greenback moved little in overnight trade on account of a U.S. market holiday, it has shown surprising resilience despite recent signs of cooling economic activity.

The dollar index and dollar index futures were steady in Asian trade on Tuesday. Both gauges were close to their highest levels since early-June.

Resilience in the dollar saw most Asian currencies retreat, while hotter-than-expected inflation readings from South Korea, Thailand and the Philippines also weighed on sentiment.

The yuan fell 0.2% after a private survey showed that China’s service sector purchasing managers’ index (PMI) grew at its slowest pace in eight months. The reading showed that exporters in particular were facing fresh headwinds from slowing overseas demand.

Bigger losses in the yuan were somewhat eased by a stronger-than-expected daily midpoint fix by the People’s Bank, which has signalled increasing discomfort with weakness in the Chinese currency.

 

Australian dollar sinks, RBA maintains course ahead of leadership change.

The Australian dollar was the worst performer in Asia for the day, down 0.5% after the Reserve Bank of Australia (RBA) kept interest rates steady at 4.10%, as expected.

Governor Philip Lowe, whose term ends on September 18, said that the bank will still maintain a largely data-driven approach to future hikes, noting that while local inflation had cooled, it still remained well above the central bank’s target range.

Deputy RBA Governor Michele Bullock is set to take the helm at the RBA later this month and will also oversee sweeping changes to the bank’s meeting schedules and rate-setting policies, concerns over China also dented the Australian dollar, given that China is Australia’s biggest trading partner.

 

Dollar rises close to three-month highs after weak Chinese data.

The U.S. dollar gained in early European trade Tuesday, as traders turned to this safe haven after disappointing Chinese services activity hit risk-taking sentiment.

At 03:00 ET (07:00 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.3% higher at 104.382, close to three-month highs.

Weak Chinese data boosts safe-haven dollar

Data released earlier Tuesday showed that China’s services activity expanded at the slowest pace in eight months in August, with stimulus from Beijing having so far failed to meaningfully revive the second largest economy in the world.

The Caixin services purchasing managers’ index rose 51.8 in August, lower than expectations for a reading of 53.6 and July’s figure of 54.1.

This disappointment has seen traders run to the safety of the U.S. dollar, with the dollar index climbing close to its highest level since early-June.

At the same time, USD/CNY rose 0.3% to 7.2940, with the yuan falling to a one-week low.

The U.S. market is set to return from Monday’s public holiday, and the focus is likely to be on the number of Fed officials who are set to speak this week, offering more cues on monetary policy before a hotly anticipated meeting later in September.

While the U.S. central bank is expected to keep interest rates steady, it is also expected to reiterate its plans to keep rates higher for longer.

 

 

 

 

 

 

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