US Dollar recovers as China steadies yuan, trade data boosts Aussie
Frankfurt (Jan 13) The dollar and risk-sensitive currencies rose against the yen and the euro on Wednesday as the yuan steadied and better than expected Chinese trade data helped reduce some of the pessimism towards the world's second largest economy.
The offshore yuan was flat in London trade as some calm returned following heavy intervention by Beijing to stem recent declines in the Chinese currency. Some estimated the Chinese central bank may have sold $10-20 billion in the last week to prop up the yuan.
The People's Bank of China (PBOC) fixed the daily mid-point for the yuan at 6.5630 to the dollar, little changed from the firm fixes on the previous two days, alleviating some of the fears that have weighed on investors' minds about a sharp and quick depreciation in the currency.
The fixing came as the central bank put a squeeze on offshore sellers of the currency by making it prohibitively expensive to speculate against the yuan.
The dollar index rose 0.3 percent to 99.246, extending its recovery from this week's low of 98.252 set on Monday. Against the yen, the dollar rose 0.6 percent to 118.30 yen, extending its recovery from a 4 1/2-month low of 116.70 yen hit on Monday.
The euro also fell 0.35 percent to $1.0822, from Monday's high of $1.0970.
"It is hardly surprising that safe haven currencies like the yen are under pressure. However, it is questionable how long this risk appetite will last," said Lutz Karpowitz, currency strategist at Commerzbank.
Both the safe-haven yen and the low-yielding euro tend to gain at times of market stress because these currencies are often used as funding currencies for investment in risk assets, and consequently rise when there is a retreat from those assets.
Traders attributed the improved sentiment in global markets to Chinese data that showed exports and imports in December were both better than expectations.
All of this was good news for the Australian dollar, often used as proxy for China because of Australia's reliance on Chinese demand for raw materials. It jumped 0.7 percent to $0.7032, edging back from Monday's four-month low of $0.6927.
While Beijing appears to have stabilized the yuan for now, analysts say its long-term policy outlook remains unclear. Hence volatility in currency markets was likely to stay.
"When the yuan was accepted as reserve currency for the IMF, they were asked to liberalize the market. And in the long run, that is what they are likely to be heading for. What they have been doing in recent days is the opposite," said Kyosuke Suzuki, director of forex at Societe Generale.
"In addition, there's question of how long they can keep up massive market intervention," he added.
Source: Reuters
