Dollar Higher Against Yen After Solid China Data, Nikkei Advances

The dollar was higher against the yen in Asian trading Thursday, with the upbeat Japanese stock market performance and strong China data inviting selling of the yen.  As of 0450 GMT, the U.S. currency was at Y101.70, compared with Y101.35 late Wednesday in New York.

After staying in a tight range early in the session, the greenback started ratcheting up in the wake of the stock market strength.

The benchmark Nikkei Stock Average quickly gained momentum in late morning trading, following a strong reading of the preliminary HSBC China Manufacturing Purchasing Managers Index.

The China data, a gauge of nationwide manufacturing activity, rose to 49.7 in May, compared with a final reading of 48.1 in April. The reading is the highest in five months, though it still indicates a contraction. Around 0500 GMT, the benchmark Nikkei Stock Average was up 2.2%

“The market has turned to a risk-on mode,” said Yuji Kameoka, chief FX strategist at Daiwa Securities.

Investors typically sell the Japanese currency, considered a safe haven, when global financial uncertainty fades. At the same time, the solid China data pushed investors into the commodity-linked Australian dollar. The Aussie gained to $0.9271 from $0.9251 and also advanced to Y94.30 from Y93.79.

“If the economic recovery spreads on a worldwide basis, the yen is vulnerable to weaken,” said Mr. Kameoka, adding that the dollar may test Y103 in the next two weeks.

The greenback’s downside support could stay firm as investors are increasingly conscious of the fact the dollar failed to stay below its 200-day moving average of Y101.20-Y101.30.

On Wednesday, the dollar had fallen to Y100.81, its lowest in three and a half months and just above the year-to-date low of 100.75 on Feb. 4.

The euro was at $1.3671 from $1.3687 and was at Y139.05 from Y138.74.

By Hiroyuki Kachi