Aussie at 3-month peak after solid China PMI, kiwi stays strong

[SYDNEY] The Australian dollar soared to a more than three-month peak on Friday and was set for its best weekly performance since mid-March, supported by a survey showing solid manufacturing growth in top trading partner China.

A gauge of manufacturing activity in the world's second biggest economy expanded to 51.7 in June, the eleventh straight month of gains and the fastest pace since March.

That confounded forecasts of a drop to 51.0 in a Reuters survey.

The Australian dollar, typically used as a liquid proxy for China plays, scaled a high of US$0.7712 - a level last seen on March 21.

For the week, the Aussie is up nearly 1.9 per cent. It notched up gains of 3.66 per cent for the month, following losses in March, April and May.

"The Australian dollar has moved a little bit faster than we had expected, but we see the Aussie has more upside risks than downside. If it continues to go up, I won't be surprised," said Richard Grace, currency strategist at Commonwealth Bank.

"We are seeing a global pick up in economic activity and the Australian dollar generally appreciates in this environment. We also think the US dollar is going to soften over the course of this year because most of the Fed rate hikes are priced in."

The Federal Reserve raised interest rates this month and left the door open for a further increase later in the year.

Central banks in the European Union, Britain and Canada have also turned hawkish, boosting their currencies at the expense of the US dollar.

Locally, investors will closely watch a monetary policy statement from the Reserve Bank of Australia (RBA) for any shift in language from its neutral stance. The RBA meets on Tuesday when it is widely expected to hold rates at a record low of 1.50 per cent.

Across the Tasman Sea, the New Zealand dollar stood at US$0.7317, within kissing distance of a near five-month top of US$0.7344 touched earlier this week.

The Kiwi is set for its seventh consecutive weekly gain. For the month it is up 3.3 per cent, notching up its second straight win.

New Zealand government bonds fell again, sending yields jumping as much as 9.5 basis points on the long-end of the curve.

Australian government bond futures slid, with the three-year bond contract down six ticks at a three-month trough of 98.020. The 10-year contract sank 7.5 ticks to a 1-1/2 month low of 97.375.

REUTERS