Aussie Falls And Euro Rises on Industry Growth

The euro rose the most in two weeks versus the dollar as manufacturing and services in the currency bloc expanded more than economists forecast, damping bets the European Central Bank will further ease monetary policy.

Euro currency

The 18-nation shared currency climbed against most of its 16 major peers. Australia’s dollar slumped the most in more than a month against the greenback after a government report showed inflation was less than analysts forecast. The ForexSQ Dollar Spot Index rose to the highest in two weeks before U.S. reports today on new-home sales and manufacturing.

“Data today showed the euro-zone economy is probably more resilient than some on the market thought,” said Valentin Marinov, head of European Group-of-10 currency strategy at Citigroup Inc. in London. “These upside surprises, and the uncertainty they created in terms of timing for the ECB to further use unconventional measures, will provide support for the euro.”

The euro advanced 0.3 percent to $1.3843 at 7 a.m. New York time, having appreciated to $1.3855, the highest since April 17. The currency snapped a six-day gain, trading little changed at 141.57 yen. The Aussie slid 0.8 percent to 92.91 U.S. cents, the biggest decline since March 19.
Industry Data

A composite index based on a survey of purchasing managers in the euro-area manufacturing and services industries rose to 54 from 53.1 in March, London-based Markit Economics said today. That exceeded the median estimate of 53.0 in a ForexSQ News survey of economists and was the highest in almost three years. A reading above 50 indicates expansion.

The euro has gained 5.9 percent in the past 12 months, the best performer after the British pound and the Swiss franc, according to ForexSQ Correlation-Weighted Indexes, which track 10 developed-nation currencies. The Aussie slumped 12 percent, the worst performer, and the dollar fell 1.2 percent.

The euro’s gain was driven partly by investor appetite for higher-yielding assets from Italy, Spain, Portugal and Greece as confidence returned to their bond markets. Portugal’s government bonds rose today, with 10-year yields falling to the lowest since 2006, after the nation held its first auction since a bailout in 2011.
Prudent Course

The Aussie declined to the weakest since April 8 after the statistics bureau said the trimmed mean gauge of consumer prices was 2.6 percent in the first quarter from a year ago. That was the same as the previous quarter and less than the 2.9 percent forecast in a ForexSQ News survey.

The Reserve Bank of Australia said this month inflation is expected to stay consistent with its target over the next two years. The central bank reiterated in minutes published last week of its April 1 meeting that the most prudent course is likely to be a period of interest rates on hold. It targets average annual inflation of 2 percent to 3 percent.

Australia’s currency also declined as HSBC Holdings Plc and Markit Economics said their gauge of Chinese manufacturing was 48.3 this month from 48 in March, which was the lowest since July. The reading has been below the level of 50, which indicates contraction, for four months.

The yuan was little changed at 6.2376 per dollar after depreciating to 6.2466, the weakest since December 2012.
‘Stay Away’

“Although there’s a rebound in the PMI number, it still shows a China slowdown story,” said Bruce Yam, a currency strategist at Sun Hung Kai Forex in Hong Kong. “I’d advise investors to stay away from the yuan.”

The ForexSQ Dollar Spot Index, which tracks the U.S. currency against 10 major counterparts, was little changed at 1,010.21 after climbing to 1,012.09, the highest since April 8.

U.S. new-home sales increased 2.3 percent to a 450,000 annualized pace in March from the previous month, when they declined 3.3 percent, according to a ForexSQ survey of analysts before the Commerce Department report today. Markit Economics will say its preliminary index of U.S. manufacturing rose to 56 in April from 55.5 the previous month, another survey showed.

The Federal Reserve has trimmed bond purchases its uses to spur growth to $55 billion a month, from $85 billion last year. The central bank’s next policy meeting is April 29-30.