July 6, 2020 / 8:07 AM / a month ago

FOREX-China waves the green flag for FX bulls

* Graphic: World FX rates in 2020 tmsnrt.rs/2RBWI5E

* Dollar/yen hugs narrow trading range

* Coronavirus infections remain a threat to currencies

* Aussie in focus before Reserve Bank of Australia meeting

By Thyagaraju Adinarayan

LONDON, July 6 (Reuters) - The Chinese yuan led commodity currencies higher against the dollar on Monday as investors lapped up risky assets on growing expectations of a strong Chinese economic rebound.

An index of blue-chip Chinese shares surged to its highest in five years as traders bet on a revival in China, pushing the yuan to its highest levels since March 18 against the dollar.

“The economic recovery process looks encouraging (and) looks likely to sustain while the lack of harsh trade headlines has at least eased concerns among investors for now,” said Hao Zhou, a strategist at Commerzbank.

A revival in Chinese economic activity bodes well for Australia and Europe which counts Beijing as its biggest trading partner.

The euro rose 0.5% to $1.1303 to a two-week high after data showed orders for German industrial goods rose by 10.4% in May, rebounding from their biggest drop since records began in 1991 the previous month.

The Australian dollar rose 0.4% to $0.6975 following a 1.2% gain last week, with the market focused on a Reserve Bank of Australia policy meeting on Tuesday.

“The markets are focused on other currency pairs, like the Australian dollar, which is still in a clear uptrend against the U.S. dollar due to the rise in copper prices,” said Masafumi Yamamoto, chief currency strategist at Mizuho Securities.

The broad recovery in risk appetite pushed the dollar lower. It was already grappling with a steady rise of coronavirus infections in the United States that has prompted investors to cut their exposure to the dollar in recent weeks.

Against a basket of currencies, the dollar edged 0.4% down to 96.82, its lowest level since July. 2.

Goldman Sachs revised its economic projections for the U.S. economy down to a 4.6% contraction in 2020 versus a previous estimate of -4.2%.

“The healthy rebound in consumer services spending seen since mid-April now appears likely to stall in July and August as authorities impose further restrictions to contain the virus spread,” Goldman analysts said in a note.

Sterling moved slightly higher to $1.2509 against the dollar amid reports British Finance Minister Rishi Sunak plans to raise the property tax threshold and temporarily cut the value-added tax (VAT) in the hospitality sector.

Reporting by Thyagaraju Adinarayan; Editing by Saikat Chatterjee and Nick Macfie

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