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Euro, Aussie gain on economic recovery hopes
THE euro briefly hit its strongest level since mid-March on Monday and trade-sensitive currencies including the Australian dollar rallied as investors took cheer from signs that some economies may be through the worst of the Covid-19 downturn.
Investors were also relieved that US President Donald Trump made no move to impose new tariffs on China during a news conference on Friday when he outlined his response to Beijing's tightening grip over Hong Kong. Economic data suggested the collapse in manufacturing output may have found a bottom in some countries.
In China, the Caixin/Markit Purchasing Managers Index (PMI) showed a marginal but unexpected improvement in factory activity last month.
In the eurozone, the manufacturing PMI recovered somewhat in May from April's record low, although factory activity still contracted heavily. Japan and South Korea, however, saw the sharpest falls in activity in more than a decade. The Australian dollar was the stand-out performer, surging as much as 1.3 per cent to a four-month high of US$0.6772.
The Aussie is now up more than 20 per cent from March lows. It gained steadily through May as the country brought the novel coronavirus under control and started June with a jump as the price of iron ore - Australia's top export - hit record highs.
The euro gained, rising 0.4 per cent to US$1.1154 before falling back to trade flat at US$1.1115. "We turn strategically bullish on EUR/USD following the EU debt recovery fund proposal," Morgan Stanley strategists said, referring to the European Commission's proposals for a 1.85 trillion euro fiscal package.
The strategists, who expect more easing from the European Central Bank when it meets on Thursday, recommend buying the euro with a target of US$1.155 - a level the single currency last traded at in January 2019.
With other currencies rising, the dollar fell to its weakest since March 16, before recovering somewhat. Against a basket of currencies the dollar index was last down 0.1 per cent at 98.15.
ING analysts said the door to a weaker dollar had been opened now that new US measures imposed over Hong Kong had proved less serious than feared and as Opec+ looked set to extend oil supply cuts, which will boost commodity-linked currencies.
Analysts said that unrest in major US cities against police brutality was concerning but unlikely to shift short-term optimism about the US economy.
Sterling rose as much as 0.6 per cent to a three-week high of US$1.2425, helped by Britain gradually moving out of lockdown.
China's offshore yuan edged lower - it rallied on Friday on hopes for a softening in Sino-US tensions.
The New Zealand and Canadian dollars climbed.
The Japanese yen inched higher, with the dollar down 0.2 per cent to 107.66 yen. REUTERS