TOKYO: The euro hit a six-week high against the dollar on Monday as upbeat data on the Chinese economy boosted risk sentiment, reversing earlier losses triggered by a credit downgrade of the euro zone rescue funds late last week.
Despite encouraging Chinese data, however, the Australian dollar dipped as disappointing local retail sales cemented expectations that the Reserve Bank of Australia will cut interest rates on Tuesday.
"The market was initially cautious on the euro after the credit downgrade of rescue funds. But sellers are being forced to buy it back now," said a trader at a Japanese bank.
The euro rose to as high as $1.3048, its highest level since Oct 23 and last stood at $1.3040, up 0.4 percent from late US levels last week.
It has important resistance levels at around $1.3050, including a long-term trendline connecting its peak hit in April and August of 2011 as well as a 76.4 percent retracement of its decline from September to November this year.
The final reading for the HSBC China Purchasing Managers' Survey (PMI) rose to 50.5 in November from 49.5 in October, suggesting the pace of activity in its manufacturing sector quickened for the first time in 13 months in November.
The data, coming after China's official PMI published on Saturday also rose, boosted hopes of recovery in the world's second-biggest economy. But there were signs Beijing is still relying too heavily on state-led investment rather than the private sector.
The euro initially fell in Asia after Moody's cut its rating on the European Stability Mechanism (ESM) to Aa1 from Aaa on Friday, keeping a negative outlook.
It also lowered its provisional rating on the European Financial Stability Facility to (P)Aa1 from P(Aaa), citing a recent downgrade of France's sovereign rating.
Traders said short-covering in the euro was active particularly against the Australian dollar, which was hit by soft retail sales data.
The euro rose more than 0.7 percent against the Aussie to hit one-month high around A$1.2528.
Against the US dollar, the Aussie fell 0.15 percent to $1.0412, falling as low as $1.0393 at one point.
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