By Tom Westbrook
SINGAPORE (Reuters) – The dollar found support on Thursday as simmering Sino-U.S. tensions and weak Chinese consumption data knocked investors’ faith in a fairly swift global economic recovery from the coronavirus crisis.
China’s 3.2% economic growth last quarter easily beat market expectations for 2.5%. But an unexpected drop in retail sales – for a fifth straight month – was an unwelcome harbinger of possible problems ahead for the rest of the world as more countries relax lockdowns and allow businesses to reopen.
The growth-sensitive Australian dollar slipped under 70 cents after the data, and the greenback clambered off an overnight one-month low against a basket of currencies.
“While in general it’s fair to say that the numbers beat expectations, what the numbers also reveal is that we’re seeing that the China consumer remains behind,” said National Australia Bank FX analyst Rodrigo Catril in Sydney.
“That cautiousness is something the market is looking at in terms of countries where the consumer plays a bigger role, so that’s obviously relevant for the U.S. as well.”
The was last down 0.3% at $0.6988, the 0.2% softer at $0.6557 and the fell off a four-month high in offshore trade to 6.9962 per dollar.
Surging U.S. virus cases also dampened sentiment and weighed on equity markets as focus shifts to Europe, and the region’s recovery plans, as well as rising global tensions.
Britain on Wednesday ordered that equipment from China’s Huawei be purged from its communications network by 2027, prompting a warning from Beijing, while China and the U.S. are at loggerheads over issues from trade to technology.
President Donald Trump has not ruled out additional sanctions on top Chinese officials over Beijing’s crackdown in Hong Kong, a White House spokesman said on Tuesday.
The New York Times also reported his administration is considering a sweeping ban on travel to the United States by Chinese Communist Party members, citing four unnamed people with knowledge of such discussions.
STANDIN’ AT THE CROSSROADS
The cautious drift in markets recoups some of the dollar’s losses this week as investors had cheered promising progress toward a coronavirus vaccine, pulling most of the majors back toward the ranges they have marked for more than a month.
“The broad dollar is at a crossroads,” said OCBC FX strategist Terence Wu. It is under pressure, but its near-term fate, he said, rests with the euro and the outcome of today’s European Central Bank meeting and the weekend’s EU Summit.
The euro has pulled back from a four-month top hit overnight, but remained supported in Asia at $1.1402.
The ECB is all but certain to keep policy on hold on Thursday, which would keep pressure on political leaders to agree on a recovery plan at a Friday-Saturday conference in Brussels.
Any deal requires bridging a gap between wealthy, thrifty northern countries and the high-debt south that has taken the brunt of the COVID crisis.
The ECB delivers its decision at 1145 GMT, which will be followed by ECB President Christine Lagarde’s press conference at 1230 GMT.
“In our view, the euro can sustain its move beyond $1.1400 if all EU leaders agree on the proposed EU-wide recovery fund,” said Commonwealth Bank of Australia FX analyst Kim Mundy.
Elsewhere, the pound dipped 0.2% with the broader mood to $1.2557, but the safe-haven Swiss franc was kept under pressure, suggesting investors are not willing to totally abandon their optimism just yet.
The Norwegian krone slipped from a one-month high as oil prices eased. The Indonesian rupiah was under pressure at a month low ahead of a central bank meeting, where just over half of 26 analysts polled by Reuters expect a cut.
A decision is due around 0700 GMT.