FOREX-Aussie gains as data shows China may have turned corner; yuan shines

The Australian dollar rallied on Friday as Chinese data showed pressure on the world's second-biggest economy may be starting to diminish, with the offshore yuan rising to a six-month high against the greenback. The Aussie is often traded as a liquid proxy for the Chinese yuan as the country's small, open economy is heavily reliant on exports to China.

Though China's economy grew 6.0% in the December quarter from a year earlier, and 2019 growth of 6.1% was the slowest in 29 years, Beijing is widely expected to introduce more stimulus measures in 2020 while investment and demand remain sluggish. "The Chinese data overnight offered some cause for optimism with the Phase 1 trade deal with the U.S. partially lifting the cloud of uncertainty hanging over the economy," said Craig Erlam, senior market analyst at OANDA.

The Aussie and it's New Zealand counterparts rose 0.2% against the dollar respectively, while the Chinese currency in the offshore market rose 0.2% to 6.8636 yuan per dollar, its strongest level since July 2019. Optimism over the Phase 1 U.S.-China trade deal signed on Wednesday has also raised hopes that the economy may be bottoming out.

"There were rebounds in some areas, such as fixed-income investments and industrial output, which is in line with other signs that China's deceleration is coming to an end," said Masashi Hashimoto, senior currency analyst at MUFG Bank in Tokyo. The dollar held its ground against a broad basket of currencies but was on track for a small weekly loss, with the dollar index tracking its strength against six of its major peers little changed at 97.31.

Recent data has been mildly supportive of the greenback. U.S. retail sales increased for a third straight month in December, and the number of Americans filing claims for unemployment benefits dropped for a fifth straight week last week, showing that the labor market remained strong.

Elsewhere, the British pound steadied below $1.31 on Friday and was on track for its first weekly gain in a month, despite a week of torrid data including unexpectedly low inflation and dovish comments from central bank policymakers.

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