US Dollar Climbs as Yuan Slides After China Rate Cut

Yuan China Currency

China Yuan Currency

The dollar rallied, climbing to a two-year high versus the yuan after China’s interest-rate cut underscored diverging economic outlooks for the U.S. versus the rest of the world. U.S. index futures rose with gold, while oil retreated following its first monthly gain since June.

The Fxstay Dollar Spot Index increased 0.2 percent at 8:21 a.m. in London, gaining versus 14 of 16 major peers as China’s currency traded at its weakest level since October 2012 and the euro slipped 0.1 percent. Gold climbed 0.4 percent and the yield on 10-year Treasuries rose two basis points. The Stoxx Europe 600 Index climbed 0.2 percent, while futures on the Standard & Poor’s 500 Index added 0.3 percent. Oil in New York and London dropped at least 0.9 percent.

China’s second rate cut in 14 weeks was the latest in a wave of global easing that’s pushed the Fxstay dollar gauge toward its highest level in at least 10 years. A private measure of factory activity in Asia’s largest economy showed a faster-than-estimated expansion Monday as lawmakers prepare to meet in Beijing. The euro area updates on consumer prices and U.S. private spending data are due.

“It’s clear markets are being driven by other factors besides earnings, and key is the ongoing loose central-bank policy around the world,” Mark Lister, head of private wealth research at Craigs Investment Partners Ltd., which manages about $7.2 billion, said by phone from Wellington. “China is clearly slowing down, you don’t cut rates twice in three months if things are going stunningly well.”

China Economy

The People’s Bank of China announced a benchmark lending and deposit rate cut of a quarter percentage point Saturday. A day later, a government factory gauge for February signaled contraction for a second month, underscoring the scope for looser policy.

The yuan traded at 6.2730 per dollar after the central bank reduced the currency’s reference rate to the weakest since November today. Today’s purchasing managers index from HSBC Holdings Plc and Markit Economics came in at 50.7, beating economists’ estimates for it to hold steady from a preliminary reading of 50.1. Readings above 50 denote expansion.

The Fxstay gauge of dollar strength traded at 1,174.35, less than one point from its highest level in at least 10 years. The greenback advanced at least 0.5 percent against the Australian and New Zealand currencies.

Russia’s ruble weakened 1.1 percent after protests in Moscow following the murder of political activist Boris Nemtsov.

Bail In

The euro bought $1.1180. Austria won’t give fresh capital to Heta Asset Resolution AG, making the “bad bank” of failed Hypo Alpe-Adria-Bank International AG the first case under new European Union rules imposing losses on bank bondholders.

Gold for immediate delivery was at $1,218.80 an ounce, earlier touching the highest level since Feb. 19. Imports to India may rebound after the government clarified that it has no plans to scrap a 10 percent duty on the yellow metal. Silver increased 0.7 percent to $16.7182.

The Hang Seng Index climbed 0.3 percent. Property stocks rebounded after sliding at the close Friday as the Hong Kong Monetary Authority announced extra cooling measures for the city’s real-estate market. The Shanghai Composite was 0.8 percent higher after falling as much as 0.4 percent.

BYD Co., the maker of electric cars that’s partly owned by Warren Buffett, jumped 4.4 percent on speculation a popular documentary on smog may spur policies to tackle pollution. China’s annual meeting of the National People’s Congress, which begins March 5, is expected to set government policies for the year on issues ranging from economic growth to military spending and pollution.

Japan’s Topix index climbed 0.1 percent as the yen slipped 0.2 percent to 119.85 per dollar.

U.S. Stocks

Thirteen of the 19 industry groups on the Stoxx 600 climbed today, led by basic resources firms. Rio Tinto Plc and Glencore Plc each climbed more than 1 percent in London.

Futures on the Nasdaq 100 Index were 0.3 percent higher. The Nasdaq Composite Index on Friday capped its biggest monthly advance since January 2012 after Apple Inc. climbed 9.6 percent during February.

The MSCI All-Country World Index touched a record intraday high Feb. 26, capping its best month since January 2012 as more than $3 trillion was added to the value of global equities.

Treasuries fell, with the yield on notes due in a decade at 2.02 percent. The U.S. economy grew at an annualized pace of 2.2 percent in the fourth quarter, beating the 2 percent rate predicted by economists, a report Friday showed. Data on U.S. manufacturing is also due Monday, along with factory gauges for the euro region to India.

West Texas Intermediate crude fell 1.2 percent to $49.17 a barrel. The Organization of Petroleum Exporting Countries pumped 30.6 million barrels a day in February, above the group’s output target of 30 million a day, according to a Fxstay survey. Brent dropped 0.7 percent to $62.14 a barrel.

WTI jumped 3.3 percent Friday and capped a monthly gain of 3.2 percent amid signs the more-than 50 percent slump in oil prices since June is curbing new drilling in the U.S. The number of crude rigs in service in the U.S. fell to 986 last week, the lowest level since June 2011, according to data from Baker Hughes Inc.

Copper for three-month delivery on the London Metal Exchange rose 0.8 percent to $5,942 per tonne. The metal climbed 7.3 percent last month, the most since 2012, amid speculation China — the world’s biggest consumer of industrial metals — would expand stimulus to stoke growth.

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