[1/3]Australian dollar bills and coins are seen in a cash register at a store in Sydney, Australia Feb. 11, 2016. REUTERS/David Gray/
SINGAPORE, Jul 20 (Reuters) – The Australian dollar rose on Thursday after the country’s employment data far exceeded market expectations, while the yuan rallied higher after Chinese monetary authorities stepped up efforts to defend the weakening currency.
Australia’s employment well exceeded expectations for the second month in a row in June, figures on Thursday showed, as net employment rose 32,600 from May, beating market forecasts for an increase of 15,000.
The unemployment rate also remained near a 50-year low, showing resilience in the labor market that could face the risk of further rate hikes by the Reserve Bank of Australia (RBA).
That boosted the Aussie and caused it to rise nearly 1% to an intra-day high of $0.6840 in Asia trading, with the New Zealand dollar following along.
The kiwi was most recently up 0.63% at $0.6303, with both Antipodean currencies on track to reverse four consecutive sessions of losses.
“The Australian dollar has rallied higher across the board after the economy delivered another rate-defying report,” said Matt Simpson, senior market analyst at City Index.
“Ultimately, it’s another strong run of employment data that keeps the pressure on a data-dependent (Reserve Bank of Australia) to potentially raise rates in August.”
In Asia, China, as expected, left its credit benchmarks unchanged on Thursday, although the central bank said in a statement it raised a parameter for cross-border corporate financing among its macroprudential ratings from 1.25 to 1.5. The ratio determines the maximum a company can borrow as a percentage of its net assets.
The move was designed to make it easier for domestic companies to raise funds in foreign markets, which comes as the Chinese yuan is under downward pressure as the country’s economic recovery falters.
Allowing more capital inflows could ease the pressure on the currency.
The increase signaled the People’s Bank of China’s policy guidance to “defend the (yuan) and curb excessive forex volatility alongside the strong tendency to fix the CNY,” said Ken Cheung, chief Asian FX strategist at Mizuho Bank.
Sources also told Reuters on Thursday that China’s largest state-owned banks sold dollars to buy yuan in the offshore spot market in early Asian trades.
The yuan bounced in the onshore and offshore markets as a result of the developments, with both strengthening more than 0.5% against the US dollar.
The offshore yuan was last up nearly 0.7% at 7.1840 per dollar, while the onshore yuan last traded at 7.1770 per dollar, having previously reached a session high of 7.1620.
“(It was) a one-two punch that drove (the yuan) firmer and more supportive sentiment,” said Christopher Wong, a currency strategist at OCBC.
But the move could be short-lived and the yuan could weaken again if disappointment over the lack of economic stimulus from China deepens, he added.
PRICES OUTLOOK
In the broader currency market, the US dollar lagged, although it strayed from its recent 15-month low.
Sterling suffered major losses after a sharp drop in the previous session due to UK inflation data beating market expectations.
The pound was little changed at $1.29385 after falling more than 0.7% on Wednesday.
That inflation valuation pushed back market expectations of further aggressive rate hikes from the Bank of England (BoE), with the prospect of UK rates rising above 6% now likely off the table.
Traders had at one point expected interest rates to rise to 6.5%.
“I think the market is now a bit more reasonable in its expectations for rate hikes from the BoE,” said Joseph Capurso, head of international and sustainable economics at the Commonwealth Bank of Australia.
The euro rose 0.18% to $1.1220 as investors looked to next week’s European Central Bank (ECB) policy meeting for more clarity on interest rate prospects.
ECB policymakers have taken a more dovish tone in recent days, with Governing Councilor Yannis Stournaras latest indicating that future interest rate hikes will remain up in the air after July’s likely 25 basis point hike.
The US dollar index fell 0.15% to 100.10, but had regained some ground after last week’s slump of more than 2%.
The Japanese yen rose almost 0.3% to 139.33 per dollar.
Reporting by Rae Wee; Edited by Sam Holmes and Jamie Freed
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