June 1, 2020 / 10:51 AM / a month ago

FOREX-Euro, Aussie gain on economic recovery hopes

* Euro at strongest since mid-March, dollar weaker

* Aussie jumps as much as 1.3%; Kiwi also rises

* Hopes for U.S.-China relationship, economic rebound

* Graphic: World FX rates in 2019 tmsnrt.rs/2egbfVh (Adds new analyst quote, details, latest prices)

By Tommy Wilkes

LONDON, June 1 (Reuters) - The euro briefly hit its strongest since mid-March on Monday and riskier currencies like the Australian dollar rallied as investors looked to further signs that economies may be through the worst of the downturn caused by the coronavirus.

Investors were also relieved that U.S. President Donald Trump made no move to impose new tariffs on China during a news conference on Friday during which he outlined his response to Beijing’s tightening grip over Hong Kong.

Economic data suggested the collapse in manufacturing output had found a bottom in some countries.

In China, the Caixin/Markit Purchasing Managers Index (PMI) showed a marginal but unexpected improvement in Chinese factory activity last month.

In the euro zone, the manufacturing PMI recovered somewhat in May from April’s record low, although factory activity still contracted heavily. Japan and South, however, saw the sharpest falls in activity in more than a decade.

The trade-sensitive Australian dollar was the standout performer, surging as much as 1.3% to a four-month high of $0.6772.

The Aussie is now up more than 20% from March lows. It gained steadily through May as the country brought coronavirus under control and has started June with a jump as the price of iron ore - Australia’s top export - hit record highs.

The euro gained, rising 0.4% to $1.1154 before falling back to trade flat at $1.1109.

“We turn strategically bullish on EUR/USD following the EU debt recovery fund proposal,” Morgan Stanley strategists said, referring to the European Commission’s proposals for a 1.85 trillion euro fiscal package.

The strategists, who expect more easing from the European Central Bank when it meets on Thursday, recommend buying the euro with a target of $1.155 - a level the single currency last traded at in January 2019.

With other currencies rising, the dollar fell to its weakest since March 16, before recovering somewhat. Against a basket of currencies the dollar index was last down 0.1% at 98.15.

ING analysts said the door to a weaker dollar had been opened now that new U.S. measures imposed over Hong Kong had proved less serious than feared and as OPEC+ looked set to extend oil supply cuts, which will boost commodity-linked currencies.

“We had pencilled in a bigger dollar decline for the second half of the year but will be alert to this trend emerging sooner than we had expected,” they said.

Analysts said unrest in major U.S. cities against police brutality was concerning but unlikely to shift short-term optimism about the U.S. economy.

Sterling rose as much as 0.6% to a three-week high of $1.2425, helped by Britain gradually moving out of lockdown.

China’s offshore yuan edged lower - it rallied on Friday on hopes for a softening in Sino-U.S. tensions.

The New Zealand and Canadian dollars climbed.

The Japanese yen inched higher, with the dollar down 0.2% to 107.66 yen.

Editing by Jan Harvey and Ed Osmond

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