Market Overview

Asian-Pacific Currencies Gain Against U.S. Dollar on Continuing China Boom


The Asian-Pacific currencies are moving higher against the U.S. dollar on Tuesday, after China published data showing its booming economy is not slowing down.

It was a big day for China as the Asian giant posted data on the strength of its retail sector, industrial production and inflation. The Chinese consumer price index rose 5.5% in May, slightly above Reuters consensus estimate and to the highest point in almost three years. In spite of rising inflation, traders seemed to also be relieved as some feared even higher May inflation figures, which would press the Chinese authorities to tighten their monetary policies even further.

To add more evidence to just how strong the Chinese economy is, China's industrial production rose 13.3% in May, compared to a year earlier, beating analysts' expectations of 13.2%. China is the world's largest exporter and the overall strength of its economy relies a lot on the performance of its exports-oriented manufacturing sector.

China has been urged not to rely only on overseas demand, however, but to try to boost domestic spending as well. China's efforts seem to be working, as its retail sales rose by 16.9% in May, compared to a year earlier, slightly down from 17.1% recorded in April.

The Asian-Pacific currencies responded positively to the news. At around 6:30 am GMT The greenback lost ground against the Chinese yuan, falling 0.1% to 6.4772. The news will be welcomed by the U.S. authorities and the U.S. producers, as both have claimed for a long time that the Chinese currency has been kept undervalued in order to provide competitive edge to China's exporters.

The U.S. dollar fell 0.29% against the Singapore dollar and is currently trading around 1.2327. The dollar suffered its biggest losses against the South Korean Wong, however, sliding 0.38% to 1082.6801.

Big gains were made by the Aussie and the Kiwi as well. Australia and New Zealand are big exporters of commodities and China is the world's biggest consumer of commodities. Therefore, it is not surprising that traders seem to view good news for the Chinese economy as good news for the economies of Australia and New Zealand. The dollar lost 0.33% against the Aussie to trade around 0.9399 and 0.25% against the Kiwi to stand at 1.2232.

The only Asian-Pacific currency that failed to gain some ground against the U.S. dollar was the Japanese yen. The greenback added 0.07% to its value against the Japanese currency to trade around ¥80.3050. The yen failed to find strength in the upward revision of its April industrial production data. According to new estimates, the Japanese industrial production in April was 1.6% higher than a month earlier, up from the initial estimate of 1%.

It seems that traders were not too impressed with the upward revision, as fears persist that supply disruptions will continue to take its toll on the Japanese economy after a devastating earthquake and tsunami.

Traders who believe the Chinese economy will continue to be strong will be interested in the iShares FTSE/Xinhua China 25 Index Fund (NYSE: FXI) and the Direxion China Bull 3X - Triple-Leveraged ETF (NYSE: CZM). Strong Chinese economy will also provide a tailwind to the economies of Australia and New Zealand, as the Chinese economy relies a lot on imports of commodities from these countries. Therefore, traders who believe in the scenario of a continuing boom for the Chinese economy might be also interested in the CurrencyShares Australian Dollar Trust ETF (NYSE: FXA) and the WisdomTree Dreyfus New Zealand Dollar Fund (NYSE: BNZ).

Some traders might think that China will not be able to control its inflation and that the country's boom might soon turn into bust. These traders will be interested in the ProShares Short FTSE/Xinhua China 25 Index ETF (NYSE: YXI) and the Direxion China Bear 3X - Triple-Leveraged ETF (NYSE: CZI).


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