US dollar slides after upbeat China data; Aussie dollar, sterling rise

THE US dollar fell against most major currencies on Tuesday (Apr 18) after better-than-forecast growth data from China, while strong pay figures from Britain supported the pound.

China’s gross domestic product (GDP) grew 4.5 per cent year-on-year in the first three months of the year, data showed on Tuesday, beating analyst forecasts for a 4 per cent expansion as the end of Covid-19 curbs lifted the world’s second-largest economy.

Separate data on March activity also released on Tuesday showed retail sales growth quickened to 10.6 per cent, beating expectations and hitting a near two-year high, while factory output growth also sped up but was just below expectations

“Normally on a day when you have good Chinese activity data you get a decent rally in commodity currencies, emerging market currencies and the US dollar would soften and we are starting to see that,” said Chris Turner, global head of markets at ING. “Better Chinese data is normally seen as good news for the euro too, due to the large manufacturing sector,” Turner added.

The euro was last up 0.5 per cent versus the US dollar at US$1.0978 after two consecutive daily falls of over 0.5 per cent.

The US dollar index, which measures the currency against a basket of currencies, fell 0.4 per cent to 101.67, having risen over 1 per cent in the last two trading sessions.

China’s offshore yuan was a touch higher at 6.877 per US dollar.

Britain’s pound jumped despite an unexpected rise in the unemployment rate in the three months to February as pay growth stayed higher than forecast, which could prompt the Bank of England to hike its interest rate again in May.

“Sterling has enjoyed a modest lift from today’s data,” ING’s Turner said. “Earnings figures have surprised on the upside. At the margin, that supports a 25 basis point (bps) hike in May from the Bank of England.”

The pound was last up 0.5 per cent against the US dollar at US$1.2438, ahead of inflation data on Wednesday.

In the US, data released on Monday showed confidence among single-family homebuilders improved for a fourth consecutive month in April, while manufacturing activity in New York state increased for the first time in five months.

Markets are pricing in around a 90 per cent chance of the Federal Reserve raising interest rates by 25 bps at its next meeting in May, with traders still expecting rate cuts towards the end of the year.

“The US dollar can remain sensitive to the strength, or not, of the economic data as the Fed likely nears the end of their tightening cycle,” said Kristina Clifton, an economist at Commonwealth Bank of Australia (CBA).

The Australian dollar gained 0.6 per cent to US$0.6741 after Reserve Bank of Australia (RBA) minutes showed the central bank considered an 11th-consecutive rate hike in April before deciding to pause. The RBA, however, said it was ready to tighten further if inflation and demand failed to cool.

“The minutes of the RBA’s April meeting reinforce our view the decision to leave rates on hold did not signal an end to the Bank’s tightening cycle,” said Capital Economics Australia and New Zealand economist Abhijit Surya, who expects a final 25 bps hike in May.

The US dollar fell 0.3 per cent to 134.02 Japanese yen, while the kiwi rose 0.5 per cent to US$0.6213. REUTERS