MarketWatch | Currencies ( December 3, 2012): Greek hopes, China data undercut dollar Euro hits six-week high vs greenback; Australia rate cut eyed

By William L. Watts and Carla Mozee, MarketWatch 

LOS ANGELES (MarketWatch) — The U.S. dollar fell Monday as optimism over Greece and an upbeat Chinese manufacturing survey undercut its safe-haven appeal, while the euro rose to a six-week high versus the U.S. currency. 

The ICE dollar index DXY -0.46% , which measures the greenback against a basket of six other currencies, fell below the 80 mark for the first time since the start of November, pulling back to 79.868 from 80.131 late Friday. 

The euro EURUSD +0.57% traded as high as $1.3076, up from $1.3009 late Friday in North America and its strongest level versus the greenback since Oct. 22. The shared currency recently traded at $1.3057. 

“Fears of both Chinese hard landing and the collapse of the euro zone are still fading and investors have money to put to work,” said Kit Juckes, currency strategist at Société Générale. “The global mood, however, is entirely dependent on being able to either forget about or ignore the U.S. fiscal-cliff issue.” 

A private version of China’s manufacturing purchasing-managers’ index came in slightly stronger than expected in November, pointing to an expansion in activity. The result was in line with a government version of the index released over the weekend. See: China manufacturing grows, but markets worry .

But a snapshot of U.S. manufacturing activity in November was bleak, with the Institute of Supply Management’s index falling to 49.5% from 51.7% in October. A reading under 50 indicates contraction in activity among manufacturers. U.S. stocks edged lower after the report, pushing the Dow Jones Industrial Average DJIA -0.34%  down 7 points at 13,018. Read about Monday's action in U.S. stocks. 

In Europe, Greece began its bond buyback in an effort to cut its debt load, offering to buy back as much as 10 billion euros ($13 billion) in debt. 

German Chancellor Angela Merkel was quoted over the weekend as telling a German newspaper that a debt write-off could conceivably be an option for Greece if it one day returns its budget to surplus.

“Euro-based assets are reacting well to these two bits of news because they suggest that the euro-zone authorities are changing their view on how to solve this crisis from pure austerity (like we have seen for the first 2.5 years of this crisis) to debt sustainability,” wrote Kathleen Brooks, research director at Forex.com, in a note. 

Traders continue to monitor negotiations over the so-called fiscal cliff. See: Geithner predicts Republicans will accept tax hike 

 

Crédit Agricole strategists said Monday that the fiscal cliff is currently the top focus for the foreign-exchange market. 

“Entering December, the mood of developed currency markets will be dominated by U.S. fiscal progress, or lack thereof,” they wrote. 

But with the markets already “positioned for initial U.S. fiscal disappointment,” they tipped the dollar to remain steady against the euro and to extend recent gains against the Japanese yen.

Among other currency pairs, the British pound GBPUSD +0.48% traded at $1.6049, rising from $1.6022. The yen moved higher against the dollar, pausing in its recent downtrend. The dollar USDJPY -0.17% slipped to ¥82.22 from late Friday’s ¥82.44. But euro EURJPY +0.37% traded at ¥107.37 from ¥107.27.

Australian rate cut Tuesday?

The Australian dollar AUDUSD -0.10% fetched $1.0413, compared with $1.0438 late Friday, ahead of the Australian central bank’s rate meeting on Tuesday. There are widespread expectations the Reserve Bank of Australia will cut the key interest rate to 3% from 3.25%, putting it back to the lowest level since the global financial crisis in 2009. See: Australia almost certain to cut rates Tuesday. 

 

“The general case for easier monetary policy — to nurture stronger growth in the non-mining sectors...so that overall growth remains around trend as the mining investment boom passes its peak next year — remains intact,” said analysts at Bank of America Merrill Lynch on Monday, adding that with no monetary policy meetings set until February, the rate is likely to be cut to 3% on Tuesday.

At Brown Brothers Harriman, Marc Chandler, global head of currency strategy, told clients the Australian dollar “could, counter-intuitively rally on a stand-pat stance or a [25 basis points] rate cut that would still leave Australia with the highest nominal and real rates among the major economies.”

Signs of stabilization in the Chinese economy “talk of continued reserve managers’ interest leaves us inclined to buy the Australian dollar on pullbacks, provided the $1.0380 area remains intact,” said Chandler. 

Michael Kitchen, Asia editor for MarketWatch, contributed to this article.

William L. Watts is MarketWatch's European bureau chief, based in Frankfurt. Follow him on Twitter @wlwatts. Carla Mozee is a reporter for MarketWatch, based in Los Angeles. Follow her on Twitter @MWMozee.