The Australian dollar recovered a tad on Monday from its deep losses last month after official data showed factory activity in China was better than expected, offering hope that the world's second-largest economy may be stabilising. The Aussie added as much as 0.7 percent to $0.9640 in thin early Asian trade after the official purchasing managers' index (PMI) in China, its main export market, beat expectations by rising to 50.8 in May from 50.6 in April.
Positive reaction to the data released on Saturday allowed the Aussie to reclaim a sliver of its 7.7 percent loss in May, its worst monthly fall since September 2011, as investors perked up at signs of that a slowdown in Australia's biggest export market may be levelling out. The optimism remained undimmed despite data early Monday showing the unofficial HSBC PMI, which focuses on smaller and privately-owned firms, slipped to 49.2 in May, the lowest level since October 2012.
The Aussie trimmed gains slightly to $0.9620, but stayed well above $0.9528, a 19-month trough plumbed on May 29. Last month, the Aussie even fell 4.8 percent against the broadly underperforming yen, but on Monday the Aussie gained 0.2 percent to 96.76 yen. The US dollar wound back its earlier gains against the Japanese currency as losses for the Nikkei steepened, eventually closing down 3.7 percent. The dollar last bought 100.47 yen, down from an earlier high session high of 100.73.
Volatility in the Japanese benchmark stock index has weighed on the yen for the past week and a half, with the Nikkei's 7.3 percent plunge on May 23 toppling the dollar-yen from a 4-1/2 peak of 103.74 hit on the previous day. "The obvious support is at 100 and it will be difficult for it to break that unless stocks fall an awful lot more," said Takako Masai, head of forex at Shinsei Bank in Tokyo.
The dollar has so far been deflected from the psychologically important 100 yen level as investors remain bullish on the dollar after the last strong non-farm payrolls raised expectations that the Federal Reserve may start unwinding its massive stimulus programme sooner than later. On Monday, the dollar index dipped 0.2 percent to 83.327 as investors waited for the next all-important US employment report on Friday for further clues. Fed officials have said the central bank will only begin tapering its bond-buying programme if economic indicators continue strengthening.