USD/JPY opens with gap lower after soft China data

The yen firmed broadly early on Monday, opening the Asian session strong in reaction to weaker China PMI. China’s factory sector unexpectedly shrank for the first time in nearly 2-1/2 years in January. The data is likely to reinforce the market’s current negative bias towards commodity currencies and those linked closely to the China growth story.

The dollar slid to a two-week low of 116.64 yen, down from around 117.52 late in New York on Friday. It has since steadied at 117.17. The euro reached a one-week trough of 132.00 yen , while the Australian dollar plumbed an 11-month low of 90.64 yen. These pairs recovered throughout the session.

The euro is flat against the dollar, consolidation as investors are waiting on the sidelines and are increasingly worried about Greece which is yet to persuade a sceptical Europe to accept a new debt agreement.

While there was no renewed push to sell the euro, investors saw no reason to buy it either, leaving the common currency languishing just above an 11-year trough of $1.1098 set a week ago. The euro last traded $1.1317.

The market also gave commodity currencies a wide berth given the importance of China as a key market for many resource-exporting countries like Australia.

A recent surprise cut in rates by the Bank of Canada and a dovish turn by New Zealand’s central bank, were also keeping buyers at bay.

Even an 8-percent surge in oil prices on Friday failed to give much lift to the loonie, which continued to hover near a six-year trough of C$1.2800 on the U.S. dollar.

Analysts suspect Australia’s central bank will be next to jump on the dovish bandwagon. The Reserve Bank of Australia board meets on Tuesday and many suspect it’ll either lower the cash rate by a quarter point to 2.25 percent or lay the groundwork for an easing in coming months.

Given the circumstances, speculators have built large short positions in the Australian dollar, which slumped to a six-year trough of $0.7720 last week. It was last at $0.7771.

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