Australia, Kiwi dollars gain on China stimulus plans; pound firm

[March 15, 2019]  By Saikat Chatterjee

LONDON (Reuters) - The dollar broadly fell against its rivals on Friday and was on track for its biggest weekly drop in more than three months, while the Australian and the Kiwi dollars were the biggest gainers on news of more China stimulus plans.

 Australian dollars are seen in an illustration photo February 8, 2018. REUTERS/Daniel Munoz

China will cut value-added tax (VAT) for manufacturing and other sectors on April 1, Premier Li Keqiang said on Friday. He promised to take more steps to boost its economy.

That sent the Australian and the Kiwi dollar up by more than a quarter percent each against the greenback in a broadly quiet day in the currency markets after a volatile week.

The outlook for both those currencies is heavily correlated with the outlook for the Chinese economy.

"This speaks to a foreign exchange market that had built up reasonably large short positions in each currency but was forced to cover on the news of China's tax reduction," said Stephen Gallo, European head of FX strategy at BMO Capital Markets.

Broadly, the dollar was on the back foot, before a U.S. central bank meeting next week where policymakers will shed more light on the outlook for interest rates.

While no change in policy rates is expected next week after the Fed paused a multi-year rate hiking cycle in January, officials might strike a more cautious view on the outlook for the global economy after a volatile week in currency markets.

"We are coming to the end of a very exhausting week in currency markets with the Brexit news and investors are waiting to get more insights from the Fed," said Esther Maria Reichelt, an FX strategist at Commerzbank.

Against its rivals, the dollar fell 0.2 percent to 96.61. For the week, it is set to weaken 0.7 percent, its biggest drop since early December.

BREATHER

The yen remained firm after the Bank of Japan kept monetary policy steady but tempered its optimism that robust exports and factory output will underpin growth, giving a boost to its perceived safe-haven status.

Elsewhere, the pound paused for breath but stayed on course for its biggest weekly gain in seven weeks on growing expectations that Britain won't crash out of the European Union without a deal on March 29.

Sterling last traded at $1.3217, below Wednesday's nine-month high of $1.3380 but up 1.8 percent so far this week, the biggest such gain since late January after the UK parliament voted to seek a delay in Britain's exit from the European Union, following a decision to avert a no-deal Brexit.

(Reporting by Saikat Chatterjee; Editing by Mark Heinrich)

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