Dollar Climbs as Yuan Slides After Rate Cut; Oil Retreats

(Bloomberg) — The dollar rallied with gold as China’s yuan slipped to a two-year low after China cut interest rates for the second time in three months. Oil retreated following its first monthly gain since June.

The Bloomberg Dollar Spot Index increased 0.2 percent at 10:54 a.m. in Hong Kong as China’s currency traded at its weakest level since October 2012 and the euro slipped 0.2 percent. Gold climbed 0.7 percent. The Hang Seng Index and Shanghai Composite Index advanced, while contracts on the Standard & Poor’s 500 Index added 0.1 percent. Oil in New York and London dropped at least 0.6 percent after OPEC output exceeded its quota for a ninth month in February.

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China’s second rate cut in 14 weeks was the latest in a wave of global easing that underscores diverging economic outlooks for the U.S. versus the rest of the world. A private measure of factory activity in Asia’s largest economy showed a faster-than-estimated expansion Monday as lawmakers prepare to meet in Beijing. Indonesia, Thailand and the euro area update on consumer prices, with oil’s slump damping inflation expectations globally.

“It’s clear markets are being driven by other factors besides earnings, and key is the ongoing loose central-bank policy around the world,” Mark Lister, head of private wealth research at Craigs Investment Partners Ltd., which manages about $ 7.2 billion, said by phone from Wellington. “China is clearly slowing down, you don’t cut rates twice in three months if things are going stunningly well.”

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China Economy

The People’s Bank of China announced a benchmark lending and deposit rate cut of a quarter percentage point Saturday. A day later, a government factory gauge for February signaled contraction for a second month, underscoring the scope for looser policy.

The yuan traded at 6.2733 per dollar after the central bank reduced its reference rate to the weakest since November today. Today’s purchasing managers index from HSBC Holdings Plc and Markit Economics came in at 50.7, beating economists’ estimates for it to hold steady from a preliminary reading of 50.1. Readings above 50 denote expansion.

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The Bloomberg gauge of dollar strength traded at 1,174.48, less than one point from its highest level in at least 10 years. The greenback was stronger against 13 of 16 major peers, advancing 0.5 percent against the Australian and New Zealand dollars. The euro bought $ 1.1173.

Gold for immediate delivery was at $ 1,222.18 an ounce, the highest level since Feb. 19.

The Hang Seng Index climbed 0.4 percent. Property stocks rebounded after sliding at the close Friday as the Hong Kong Monetary Authority announced extra cooling measures for the city’s real-estate market. The Shanghai Composite was 0.4 percent higher after falling as much as 0.4 percent.

U.S. Stocks

Australia’s S&P/ASX 200 Index advanced 0.9 percent and South Korea’s Kospi index was 0.2 percent higher. Japan’s Topix index climbed 0.2 percent as the yen slipped 0.2 percent to 119.88 per dollar.

Futures on the Nasdaq 100 Index were 0.2 percent higher. The Nasdaq Composite Index on Friday capped its biggest monthly advance since January 2012 after Apple Inc. climbed 9.6 percent during February.

The MSCI All-Country World Index touched a record intraday high Feb. 26, capping its best month since January 2012 as more than $ 3 trillion was added to the value of global equities.

West Texas Intermediate crude fell 0.8 percent to $ 49.36 a barrel. The Organization of Petroleum Exporting Countries pumped 30.6 million barrels a day in February, above the group’s output target of 30 million a day, according to a Bloomberg survey. Brent dropped 0.6 percent to $ 62.21 a barrel.

Rig Count

WTI jumped 3.3 percent Friday and capped a monthly gain of 3.2 percent amid signs the more-than 50 percent slump in oil prices since June is curbing new drilling in the U.S. The number of crude rigs in service in the U.S. fell to 986 last week, the lowest level since June 2011, according to data from Baker Hughes Inc.

Copper for three-month delivery on the London Metal Exchange rose to $ 5,904.50 per tonne. The metal climbed 7.3 percent last month, the most since 2012, amid speculation China — the world’s biggest consumer of industrial metals — would expand stimulus to stoke growth.

To contact the reporters on this story: Emma O’Brien in Wellington at eobrien6@bloomberg.net; Nick Gentle in Hong Kong at ngentle2@bloomberg.net

To contact the editors responsible for this story: Nick Gentle at ngentle2@bloomberg.net Michael Patterson

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