* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh
By Saikat Chatterjee
LONDON, Sept 6 (Reuters) - Risky currencies including the
Australian dollar surged on Friday after China's central bank
cut the amount of cash that banks must hold as reserves, with
markets also expecting the European Central Bank to unveil more
stimulus next week.
The People's Bank of China said it was cutting banks'
reserve requirements for the third time this year, sending a
ripple of optimism through currency markets though analysts
questioned how much stimulus global central banks have left.
"This won't be a flood of stimulus," said Neil Mellor, a
senior FX strategist at BNY Mellon in London.
"China and many other countries are in the same boat with
fiscal policy constrained by debt and central banks resorting to
jawboning and some targeted easing."
The Chinese currency in the offshore market CNH=D3
extended gains and was trading up 0.4% against the greenback at
7.1120 yuan.
The Australian dollar - its fortunes closely intertwined
with the Chinese economy - gained 0.3% to $0.6837 AUD=D3 and
strengthened 0.7% versus the Swiss franc AUDCHF= .
Appetite for risky assets, already firm in early London
trading thanks to strong data out of the United States, received
a further boost after China unveiled its latest round of policy
easing.
DATA EYED
The dollar steadied against its rivals, and was heading for
its biggest weekly drop in a month, as markets still expect the
Federal Reserve would cut U.S. interest rates this month, even
if the U.S. non-farm payrolls report on Friday is stronger than
expected.
The dollar index .DXY slipped 0.1% to 98.32 and was down
0.54% so far this week, its biggest weekly drop since early
August.
"The latest risk rally rests on a number of pillars like the
recent upbeat U.S. data, receding political risks in the UK and
hopes for an abatement of the US-China trade tensions," said
Valentin Marinov, head of G-10 FX research and strategy at
Credit Agricole (PA:CAGR) in London.
Surveys suggested the U.S. economy was in better shape than
investors had feared. Services activity accelerated in August
and private employers increased hiring more than expected.
The U.S. non-farm payrolls report due later on Friday was
expected to show 158,000 jobs were added and the unemployment
rate remained unchanged at 3.7% in August.
"Investors are now hoping they can take this week's
positivity over the finishing line, so fingers crossed the
August U.S. payroll report ... doesn't throw a damp towel on the
proceedings," said Stephen Innes, Asia Pacific market strategist
at AxiTrader.
Despite the positive data, bond markets expect the Fed to
cut interest rates this month. A total of 55 basis points of
rate cuts are expected this year.
A combination of likely dovish central banks and decent
economic data also encouraged investors to buy the Canadian
dollar CAD=D3 and the Swedish crown SEK=D3 against the U.S.
dollar.
The European Central Bank is leaning towards a package that
includes a rate cut, a beefed-up pledge to keep rates low for
longer and compensation for banks over the side-effects of
negative rates, sources told Reuters last week.
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