The Australian dollar inched higher on Tuesday in thin holiday trading after China's factory activity picked up faster than expected, while the New Zealand dollar was also buoyant. The Australian dollar, typically used as a liquid proxy for the yuan, rose 0.5 percent to $0.7219. That, however, was still within touching distance of a seven-month low of $0.7163 hit last week.
Official data out on Tuesday showed China's Caixin/Markit Manufacturing Purchasing Managers' index (PMI) rose to 51.9 compared with 50.9 in November and forecasts of 50.7. China is Australia's No 1 trading partner. The Aussie had a rough end to 2016, and fell 1.2 percent for the year, its fourth straight annual loss. The Aussie fared better against lower-yielding currencies, rising on the yen, the pound and the euro thanks to carry trades.
The New Zealand dollar climbed 0.3 percent to $0.6952. It barely changed in 2016, following a small gain the previous year. While the antipodean currencies were hit heavily after the US election, the kiwi has been supported by a run of strong domestic economic data and a rally in the price of milk, the country's top export earner. New Zealand government bonds did not trade on Tuesday due to a public holiday. Australian government bond futures were mixed, with the three-year bond contract down 1 tick at 97.950. The 10-year contract rose 1 tick to 97.21.
Analysts expect more of the same in the new year with the US currency and Treasury yields on an uptrend following Donald Trump's upset victory in the US presidential election. The greenback soared to 14-year highs in December on speculation the US Federal Reserve will hike rates as many as three times this year, and that Trump will stoke growth and inflation with debt-funded tax cuts.
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