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US dollar holds steady at 29-month high
THE US dollar held at a 29-month high on Tuesday as renewed evidence of strength in the US economy encouraged investors to buy the greenback.
With rate cuts in Australia, final PMI readings in Europe at seven-year lows and weak confidence readings in Japan, hedge funds pushed the US dollar higher after it scored its biggest quarterly gain since June 2018.
On Tuesday, a September survey showed eurozone manufacturing activity had contracted the most in almost seven years.
Germany's September CPI data rose less than expected, suggesting eurozone inflation was losing momentum and the region's economy was not improving, despite a large dose of stimulus from the European Central Bank last month.
"The economic divergence trade between Europe and the US has become even stronger, and unless there is a clear sign of a slowdown in the US economy, the dollar is expected to stay on a strong footing," said Commerzbank analyst Thu Lan Nguyen.
Against a basket of other currencies, the US dollar rose 0.2 per cent to 99.58, its highest since May 2017. The next target for the US dollar is the January 2017 high of 103.82.
Economic surprise indexes published by Citigroup for the United States and Europe showed an increased divergence. The former is at its highest in nearly two years; the latter has fallen to a 2019 low.
The weakness in economic indicators wasn't confined to Europe. Japanese big manufacturers' business confidence worsened to a six-year low in the July-September quarter, the Bank of Japan's closely watched tankan survey showed.
Further evidence of the strength of the US economy will come from September manufacturing PMI and ISM and September auto sales data due later on Tuesday.
Elsewhere, the Australian dollar was the main underperformer in the G-10 after the Reserve Bank of Australia cut interest rates and expressed concern about job growth.
The Australian dollar fell 0.7 per cent to US$0.6700 after the RBA cut its cash rate to a record low of 0.75 per cent, as expected.
The New Zealand dollar fell to a four-year low of US$0.6238 , as weakening business confidence bolstered expectations for monetary easing. REUTERS