Australia’s dollar and government bond yields climbed amid signs that a slowdown in China is bottoming out, easing concern demand for commodities will decrease in Asia’s biggest economy.
The Aussie gained against all of its 16 major peers after official Chinese data over the weekend showed manufacturing accelerated and as a technical indicator signaled a recent decline in the currency was overdone. Local 10-year bond yields rose before a Reserve Bank of Australia policy meeting tomorrow, when the central bank will probably keep the benchmark rate at a record-low 2.75 percent, economists forecast.
The manufacturing report published June 1 was “the first seemingly positive bit of economic news that we’d had from China for some time,” said Ray Attrill, the global co-head of currency strategy at National Australia Bank Ltd. in Sydney. “There’s a chance that we can push a little bit higher,” he said, referring to the Aussie.
Australia’s dollar added 0.8 percent to 96.49 U.S. cents as of 4:36 p.m. in Sydney after posting a 7.7 percent tumble in May, the biggest monthly slump since September 2011. New Zealand’s dollar rose 0.4 percent to 79.75 U.S. cents following a 7.2 percent decline last month.
The 14-day relative-strength index for the Aussie against the U.S. dollar slid to as low as 19.5 last month, a level unseen since May 2010, and was at 25.5 on May 31. Readings below 30 indicate an asset’s price has fallen too rapidly and is set for a rebound.
The Purchasing Managers’ Index of Chinese manufacturing advanced to 50.8 in May from 50.6 the prior month, the National Bureau of Statistics and China Federation of Logistics and Purchasing said on June 1. Economists in a Bloomberg News survey had forecast 50, which marks the dividing line between expansion and contraction.
A separate report today from HSBC Holdings Plc and Markit Economics showed that their PMI for China’s manufacturing fell to 49.2 last month from 50.4 in April. China is Australia’s biggest export market.
Retail sales in Australia rose 0.2 percent in April from a month earlier, the Bureau of Statistics said in Sydney today. Economists had forecast a 0.3 percent increase.
The RBA may lower borrowing costs in the coming 12 months by 34 basis points, according to data from Credit Suisse Group AG on overnight-index swap rates. That compares with the reduction of 56 basis points expected on April 30.
The yield on Australia’s benchmark 10-year note climbed six basis points to 3.42 percent today, extending its gain from the seven-month low of 3.01 percent set on May 2. Even so, the yield premium that investors can get by holding the nation’s debt over U.S. Treasuries has shrunk in the past two months, decreasing to 1.16 percentage points last week, the least since November 2008.
Futures traders increased their bearish bets on the Australian dollar to the most in almost a year. Demand for the Aussie and other higher-yielding currencies was damped amid speculation the Federal Reserve will scale down its bond-purchase program, known as quantitative easing, driving U.S. debt rates higher.
The number of wagers by hedge funds and other large speculators on a decline in the Aussie outnumbered those on a gain by 42,307 in the week ended May 28, the most for so-called net shorts since June 12, 2012, figures from the Washington-based Commodity Futures Trading Commission show.
Investors should sell Australia’s dollar against the greenback as policy makers in the U.S. look to taper monetary easing, according to HSBC.
“The dollar will continue to find support given the ongoing debate over the Fed and QE tapering, especially versus the Aussie,” Paul Mackel, HSBC’s head of Asian currency research in Hong Kong, said in an interview.