Aussie gains on easing trade tensions, resilient Chinese economy

By Kevin Buckland TOKYO (Reuters) -The Australian dollar rose on Monday, cheered by reasons to be a bit more upbeat on top trade partner China, with data showing its economy reasonably resilient to U.S. tariffs and President Donald Trump toning down some of his trade rhetoric. The yen initially weakened as Sanae Takaichi, an advocate of fiscal and monetary stimulus, appeared all but certain to become Japan's next prime minister after securing crucial political backing for the top job. However, those declines evaporated after hawkish Bank of Japan policymaker Hajime Takata reiterated a call to raise interest rates. Official data on Monday showed China's economy grew 1.1% in the third quarter, to top forecasts, while industrial output also beat with a rise of 6.5%. 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 by the figures for the first three quarters, (growth) is going to hit the target, suggesting China can withstand any pressure from the U.S.," said Dan Wang, China director at Eurasia Group. "Beijing is sending the signal that it is capable of reaching its development goals and is strongly committed to its policies." Meanwhile, President Trump said his proposed, retaliatory 100% tariff on goods from China would be "not sustainable", and confirmed he would still meet with Chinese President Xi Jinping in two weeks. The Aussie gained 0.3% to $0.6504 on Monday. China's yuan was little changed in offshore trading at 7.1235 per U.S. dollar. The euro appreciated 0.1% to $1.1665, while sterling edged down 0.1% to $1.3431. "There's an element – to use the Cold War language – of mutually assured destruction when it comes to total rare earth exports curbs and 100% tariff rates, with both the U.S. and Chinese more or less acknowledging that," said Kyle Rodda, a markets analyst at Capital.com. "As a result, the markets are pricing in that things will de-escalate," Rodda added. "However, the markets are likely to remain jittery until such backdowns are explicitly announced." In Japan, investors returned to the so-called "Takaichi trade" – bullish equities and bearish the yen – after the ruling Liberal Democratic Party sealed an alliance with the Japan Innovation Party. That sets up LDP leader Takaichi to be confirmed as prime minister in a parliamentary vote on Tuesday. Takaichi's bid to become Japan's first female premier had been in jeopardy after a sudden break-up 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 her policy views. That saw the U.S. dollar appreciate as much as 0.4% to 151.20 yen early in the session, but those gains fizzled as BOJ board member Takata, who was among two officials that unsuccessfully voted for a rate hike last month, said that Japan has probably already met the central bank's 2% inflation target. Japan's benchmark Nikkei stock index was undeterred, closing more than 3% higher and hitting an all-time peak. [.T] The BOJ next decides policy on October 30, with market-implied odds of a quarter-point rate increase at 23%, according to LSEG data. (Reporting by Kevin Buckland; Editing by Sam Holmes)

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