By Kevin Buckland
TOKYO (Reuters) – The Australian dollar rose on Monday, buoyed by reasons to be a little more optimistic about its biggest trading partner, China, with data showing its economy is reasonably resilient to U.S. tariffs and President Donald Trump toning down some of his trade rhetoric.
The yen initially weakened when Sanae Takaichi, an advocate of fiscal and monetary stimulus, looked almost certain to become Japan’s next prime minister after securing crucial political support for the top job.
However, those declines evaporated after Bank of Japan policymaker Hajime Takata reiterated his call to raise interest rates.
Official data on Monday showed China’s economy grew 1.1% in the third quarter, beating forecasts, while industrial production also outperformed with a 6.5% increase. Although the 4.8% annual growth rate marked the weakest pace in a year, it kept the country on track to meet its official growth target of around 5%.
“Judging from the figures for the first three quarters, (growth) will reach the target, suggesting that China can withstand any pressure from the United States,” said Dan Wang, China director at Eurasia Group.
“Beijing is sending a signal that it is capable of achieving its development goals and is firmly committed to its policies.”
Meanwhile, President Trump said his proposed 100% retaliatory tariff on goods from China “would not be sustainable” and confirmed he would still meet with Chinese President Xi Jinping in two weeks.
The Australian dollar gained 0.3% to $0.6504 on Monday.
The Chinese yuan was little changed in offshore trade at 7.1235 per US dollar.
The euro appreciated 0.1% to $1.1665, while sterling fell 0.1% to $1.3431.
“There is an element – to use Cold War language – of mutual assured destruction when it comes to restrictions on total rare earth exports and 100% tariff rates, and both the United States and China more or less recognize that,” said Kyle Rodda, markets analyst at Capital.com.
“As a result, markets are pricing in things to calm down,” Rodda added. “However, markets are likely to remain nervous until such pullbacks are explicitly announced.”
In Japan, investors returned to the so-called “Takaichi trade” – stocks rising and the yen falling – after the ruling Liberal Democratic Party sealed an alliance with the Japan Innovation Party.
This leaves LDP leader Takaichi confirmed as prime minister in a parliamentary vote on Tuesday.
Takaichi’s bid to become Japan’s first female prime minister was in jeopardy after a sudden split with the LDP’s coalition partner of 26 years, Komeito, earlier this month. However, in the right-wing JIP, Takaichi has a partner more aligned with his political views.