Greenback on the Defensive Following Strong Economic Data from China

By: Barbara Zigah

The U.S. Dollar remained defensive in Asian trading today as commodity-based currencies such as the Australian Dollar held steady. The Australian Dollar, which rose .7% in yesterday’s trading, retreated against the U.S. Dollar to $0.9346, a decline of .1% as reported at 2:47 p.m. (JST). Investors expect to see some resistance as it approaches $0.9407, the 2009 high trade struck in November of last year.

Much of the greenback’s softness can be attributed to growing speculation that China, the 3^rd largest economy in the world, may soon revalue the Yuan. Such speculation was reinforced following the release of economic data that shows that Chinese growth is at the fastest pace in almost 3 years; in the 1^st quarter of 2010, the economic growth of the country was at 11.9%.

The U.S. Dollar Index, a measure of the U.S. unit’s strength versus a basket of six currencies, held flat at 80.231 .DXY. A move by Chinese authorities to revalue the Yuan would be a positive one for Asian currencies, and likely put the greenback on the defensive over the short term.   Market players are somewhat reluctant to move aggressively into Dollar/Yen positions, given the speculation of Yuan revaluation.