Improved Chinese factory data lifts Aussie dollar

London

THE euro held above a three-week low on Monday as improved Chinese factory activity lifted sentiment, with the Australian dollar leading gains by nearly half a per cent.

Investors are scrutinising economic data this week for signs of economic slowdown in Europe, while key votes on Brexit mean further volatility in sterling is likely.

Euro zone inflation unexpectedly slowed in March, adding to the European Central Bank's headaches as it battles an economic slump that threatens to undo years of stimulus.

Risk appetite grew after China's official purchasing managers' index (PMI) released on Sunday showed factory activity unexpectedly grew in March for the first time in four months.

The positive readings pushed the Australian dollar, often seen as an investment proxy for Chinese economic prospects, 0.4 per cent higher to US$0.7126.

The Chinese yuan gained a quarter of a per cent in offshore trade to 6.707 to the dollar.

The euro has struggled recently near a three-week low of US$1.1210 brushed on Friday. The single currency was last trading up 0.2 per cent at US$1.1236.

"We think the euro is cheap. But unless we see a significant re-assessment of European growth prospects, then it is hard to see a rally either," ING analysts said in a note to clients.

The quest for a way out of the Brexit stalemate continues on Monday evening when British lawmakers will vote for a second time on alternatives to Prime Minister Theresa May's thrice-rejected EU withdrawal agreement.

The two options with the widest support are keeping Britain in a customs union with the European Union, and having any outcome validated by a second referendum - both of which are anathema to large parts of Mrs May's Conservative Party.

Sterling was up half a per cent at US$1.31.

The greenback rose 0.4 per cent to 124.79 yen, extending its advance from the 1-1/2-month low of 109.70 it touched a week ago to 1.3 per cent.

Positive risk sentiment helped boost emerging market currencies.

The Mexican peso gained 0.8 per cent to 19.283 to the dollar while the South African rand tacked on about 1.8 per cent to 14.243 per dollar.

The Turkish lira eased more than 1 per cent to 5.6158 per dollar after President Tayyip Erdogan's AK Party lost control of the capital Ankara for the first time in a local election. REUTERS