Asia's currencies edge higher as China rebound gathers steam

SINGAPORE: Asia’s trade-exposed currencies inched higher on Monday as China’s rebound from the COVID-19 pandemic stayed on course last quarter, even as caution about the U.S. election outcome kept the U.S. dollar supported against other majors.

China’s gross domestic product grew 4.9% in the September quarter from a year earlier, slower than forecast but faster than the third quarter and aided by strong gains in industrial output and an acceleration in retail sales.

The yuan and risk-sensitive Australian and New Zealand dollars dipped from session highs after the GDP headline miss, but stayed bought on views the consumption data was a harbinger of better growth in the current quarter.

The yuan was last steady in onshore trade at 6.6982 per dollar, after hitting a fresh 18-month peak of 6.6852 in morning trade.

The Aussie and kiwi both edged 0.1% higher, trimming earlier gains as last week's dovish central bank remarks remain a weight on the Antipodeans.

“The (Chinese) GDP numbers came in slightly below expectations, but the monthly data shows there is no reason to be overly pessimistic,” said Yoshiko Shimamine, chief economist at Dai-ichi Life Research Institute in Tokyo.

“China’s economy remains on the recovery path, driven by a rebound in exports. Consumer spending is also headed in the right direction, but we cannot say it has completely shaken off the drag caused by the coronavirus.”

Industrial output in September expanded 6.9% from a year earlier, while retail sales grew 3.3%, both well ahead of expectations.

The dollar was broadly stable elsewhere, with investor worries about rising coronavirus cases, the looming U.S. election and fading prospects of any fiscal stimulus beforehand providing support.

The dollar index was following a 0.7% rise last week. The euro held just above a two-week low at $1.1713.

The yen was steady at 105.40 per dollar while the pound also held its ground as investors clung to hopes for a Brexit breakthrough.

“The dollar can remain elevated this week,” said Commonwealth Bank of Australia analyst Kim Mundy. “A lack of fiscal stimulus and rising coronavirus infections raise concerns about the global economic outlook.”

Faint hopes that Democrats and the White House could agree on a new spending programme was tempered by the opposition of Senate Republicans and as investors focused on what the election outcome means for stimulus later.

A victory by Democrat Joe Biden was seen weakening the dollar due to perception of bigger spending.

Fifteen days out from election day, Biden leads Trump by about 10 points in national polls, and has a narrow lead in several battleground states. The pair are due to face off in a final debate on Thursday.

“Markets will be attentive to any potential shift in polls, although traditionally the last debate has less impact in public opinion,” Barclays analysts said in a note.

“The main risk for markets now would be a tightening in polls, which would reduce the likelihood of a large Democratic fiscal stimulus package and could raise the likelihood of a long contested election.”

Markets were mostly unmoved by the landslide victory of Jacinda Ardern’s Labour Party in New Zealand’s general election, with investors keeping a wary eye on protests in Thailand.

The baht slipped 0.1% as its peers rose on Monday.