Market sentiment turn negative on poor China trade data, dollar rises
The dollar rose versus the Australian dollar and kiwi dollar, gauges for global risk appetites, as investor sentiment was hurt by trade data increasing concerns China could have a sharp economic slowdown. Broader market sentiment turned negative after data showed that China's December exports unexpectedly fell 4.4 percent from a year earlier, the biggest monthly drop in two years, pointing to further weakening in the world's second-largest economy.
The data took its toll on the Australian dollar and New Zealand dollar, which both fell more than 0.4 percent. China is Australia's largest trade partner and negative sentiment about its economy does not bode well for the Aussie dollar. Last week, the Aussie and kiwi both gained around 1.5 percent versus the dollar as risk sentiment improved on hopes for a U.S.-Sino trade deal as well as more aggressive stimulus from Chinese policymakers to support its economy. The dollar on Monday gained marginally versus the offshore yuan. This follows a 1.5 percent fall against the offshore yuan last week, its steepest weekly decline since January 2017.
But some analysts still forecast the yuan to trade stronger versus the dollar in the medium-term. Michael McCarthy, chief markets strategist at CMC Markets in Sydney, said he expects the yuan to further appreciate in the medium term, as markets have overestimated China's economic slowdown. "Even after monetary easing measures announced by Beijing, we have not seen the currency weaken significantly," he said. Monday's risk-off mood led traders to bid up the safe-have yen, which rose 0.4 percent versus the greenback. The dollar index was at 95.58, down 0.1 percent, in Asian trade. After a stellar 2018 in which the greenback gained 4.3 percent as the U.S. central bank hiked rates four times, investors now expect the Fed to halt its monetary tightening policy.
Market participants think that worries of slowing domestic and global growth as well as tame U.S. inflation will make Fed policymakers hesitant to raise borrowing costs in the world's largest economy. Chairman Jerome Powell reiterated last week that Fed has the ability to be patient on monetary policy given that inflation remains stable. Data on Friday showed that U.S. consumer prices in December fell for the first time in nine months. The euro on Monday was relatively unchanged at $1.1466. The single currency lost 0.3 percent on Friday after data showed that Italy, the euro zone's third-largest economy, was at risk of recession.
Elsewhere, the British pound was marginally higher at $1.2861 at the start of what is expected to be a highly volatile week. Prime Minister Theresa May must win a vote in parliament on Tuesday to get her Brexit deal approved or risk a chaotic exit for Britain from the European Union. The numbers are not in May's favour and her chances of winning the vote look extremely slim. "The market is widely expecting the vote not to pass through parliament. Upside in sterling looks capped at $1.2940," said CMC's McCarthy.
(With inputs from agencies.)