* CAD, AUD, NZD outperform G3 peers after upbeat China PMI
* USD, EUR and JPY still searching for inspiration
* Japan to announce more ‘Third Arrow’ policies (Adds details, quotes)
By Ian Chua and Shinichi Saoshiro
SYDNEY/TOKYO, June 24 (Reuters) - The dollar-bloc currencies held onto gains on Tuesday, having outperformed their G3 peers on optimism about Chinese growth.
Given the absence of catalysts in early Asian trading, markets looked to the Japanese government to deliver its latest instalment of long-term economic policies later in the day.
The Canadian dollar traded at C$1.0725, not far from a 5-1/2 month peak of C$1.0717 per U.S. dollar. Both the Australian and New Zealand dollars were at $0.9424 and $0.8711, having hit multi-week highs of $0.9445 and $0.8749 on Monday.
All three currencies had risen after a closely watched survey on Monday showed activity in China’s factory sector expanded in June for the first time in six months as new orders surged.
Gains in the Canadian dollar followed Friday’s rally sparked by upside surprises in local inflation and retail sales data.
“Our proprietary positioning indicator is suggesting market has flipped to a long CAD bias for the first time since early 2013,” BNP Paribas analysts wrote in a note to clients.
“Given the scope for a less dovish Bank of Canada announcement and Monetary Policy Report next month, we see scope for further CAD gains, particularly against EUR and AUD.”
In contrast, the G3 currencies were stuck in familiar ranges with investors discounting the latest readings on euro zone, U.S. and Japanese manufacturing activity given the dovish stance taken by all three major central banks.
The euro was last at $1.3598, having traded on either side of $1.3600 in the past few sessions. Against the yen, the common currency stood at 138.54, while the dollar fetched 101.85.
That left the dollar index little changed at 80.286, well within 80.000-81.000 seen since May.
Japanese Prime Minister Shinzo Abe will on Tuesday detail his so-called “Third Arrow” policies including phased corporate tax cuts, reforms for the $1.26 trillion Government Pension Investment Fund (GPIF) -the world’s biggest pension fund- and proposed dance hall deregulation.
Given that many have already been leaked or announced by officials, the risk is that the measures are likely to receive a lukewarm response from investors. Still, the market will be keen to see how they are fleshed out and implemented.
“Much of the attention, particularly from foreign investors, is on GPIF reform,” said Shinichiro Kadota, chief Japan FX strategist at Barclays Bank in Tokyo.
“But judging from what the GPIF has been implying so far, portfolio allocation details are not expected to be revealed until August or even October, so any market reaction today is likely to be limited,” he said.
Abe’s government is pushing GPIF to buy more stocks and invest less in government bonds, which is expected to have repercussions on financial markets given the fund’s size.
Elsewhere, the market awaited Bank of England Governor Mark Carney’s appearance at a parliamentary committee later in the session, which could be a potential driver of sterling.
Of particular interest for traders is whether Carney would provide further hints of an early rate hike, after the governor suggested as much earlier in the month and set sterling on course for a near six-year peak versus the dollar.
The pound traded at $1.7023 after reaching $1.7064, its highest since October 2008. (Editing by Shri Navaratnam)