By Ray Wee
SINGAPORE (Reuters) – The Australian and New Zealand dollars hit multi-month highs on Wednesday and the yuan hit its highest in more than a year as China’s aggressive economic stimulus measures boosted risk appetite.
Meanwhile, the traditional safe haven currency, the U.S. dollar, came under pressure as China’s aggressive stimulus package on Tuesday increased risk appetite and expectations of another big U.S. interest rate cut in November added to headwinds for the greenback.
The greenback rose to $0.6908 in early Asian trading, its highest since February 2023, while the greenback rose to a nine-month high of $0.63555, with both currencies extending gains from the previous day.
The Australian dollar later pared back some of its gains after data on Wednesday showed domestic consumer prices slowed to a three-year low in August and core inflation hit its lowest since early 2022. It was last trading slightly lower at $0.6891.
Markets around the world are buoyed by a series of supportive measures that China announced on Tuesday to encourage investors, from a major interest rate cut to support for the stock market.
“Judging by the financial market reaction, these announcements were actually bigger than the market expected,” said Carol Kong, currency strategist at Commonwealth Bank of Australia (OTC:), noting that currencies with strong ties to the Chinese economy, such as the Australian dollar and New Zealand dollar, were particularly benefited.
“The New Zealand dollar actually performed the best out of the G10 countries and I think that’s because market participants believe the measures announced yesterday will boost consumer demand, which is usually a good sign for demand for New Zealand dairy exports,” she said.
The People’s Bank of China cut interest rates on medium-term loans to banks to 2.00% from 2.30% on Wednesday, in line with a broader monetary easing package.
The yuan rose to a 16-month high of 7.0012 yuan per dollar, while the offshore currency briefly rose above the psychologically important level of 7 yuan to peak at 6.9952 yuan per dollar.
“The yuan’s future movements should take their cues from China’s stock market as a gauge of sentiment,” said Christopher Wong, currency strategist at OCBC.
Meanwhile, the pound rose 0.1% to trade at $1.3430, its lowest level since March 2022. Expectations that the Bank of England will cut interest rates less this year than the Federal Reserve lent further support to the pound.
According to the CME FedWatch tool, the market is now pricing in a 59.5% probability of a 50 basis point rate cut at the Fed’s next policy meeting, up from just 37% a week ago.
Data released on Tuesday showed that U.S. consumer confidence unexpectedly fell in September amid growing concerns about the health of the labor market.
“Consumers remain pessimistic about the economy,” Wells Fargo economists said in a note.
“We expect there are a number of reasons why households are pessimistic, but the easing of the labor market remains the biggest concern.”
The dollar was last trading at 100.26 against a basket of currencies, hovering around 100.21, its lowest level in more than a year.
The stock price had fallen more than 0.5% in the previous trading day, its biggest one-day drop in a month.
The euro rose 0.14% to $1.1195, near a 13-month high hit last month, while the yen weakened slightly to 143.32 per dollar.
