Chinan dollar rebounds as China’s yuan strengthens

Posted on 05/12/2018 by

The Aussie plunged to US69.26¢ in morning trade. Photo: Glenn Hunt The latest decline in the n dollar came as investors fled to the safe-haven of the greenback.

The yuan has been gradually losing value against the Greenback.

The n dollar came within a whisker of a seven-year low in trade on Monday, but jumped higher following a unexpected decision by the Chinese Central Bank to strengthen the currency.

But it’s inevitable the Aussie will soon be trading at global financial crisis levels below US69¢, analysts say.

The daily yuan fix at midday came out at 6.5626 per US dollar, down from Friday. A lower fix indicates that the yuan has strengthened against the US dollar.

On Friday the People’s Bank of China had set the reference rate at 6.5636, ending an eight-day streak of devaluation that had spooked global markets.

Earlier, the Aussie plunged to US69.26¢ in morning trade before picking up afterwards. This was a tad above the lows around US69.05¢ the market reached in September 7, the lowest level for the currency since early 2009.

The Aussie dollar leapt above US69.70¢ after news of the yuan fix, before retracing a little in afternoon trade.

A senior markets analyst at ThinkForex, Matt Simpson, said the yuan fix came as a bit of a surprise. “The markets were expecting a bit little more doom and gloom there.”

For the rest of the week the dollar would probably trade somewhere between US69.20¢ and US70.50¢, Mr Simpson said.

“There’s not a huge amount of data out this week from the US or , so the main driver is the possibility of further shocks from China.” Unemployment figures

One exception to this, Mr Simpson said, would be if n employment figures on Thursday proved to be strong. “As long as unemployment is below 6 per cent that should support the Aussie as well,” he said.

“If you get a good data set there you could have a scenario where you could trade back to the US71¢ level.

“As long as nothing terrible happens in China and you get some good unemployment reads, and then nothing too strong for the US dollar, which is looking pretty weak at the moment, then it’s not impossible to get up to US71¢.”

But Mr Simpson added that within several weeks the currency would be trading at 2009 levels below US69¢.

“I think it’s inevitable we’re going to be trading there,” he said.

“We just need the market drivers. We should remain above that key level for this week, but I think it goes without saying we’ll going lower over the weeks ahead.”

Stuart McPhee, senior technical analyst at foreign exchange firm OANDA and Asia Pacific, said China’s problems continued to “haunt” the n dollar.

“For some time now, the US70¢ level has supported the local currency very well, but it is now under serious threat,” he said.

“If it continues to fall, the Aussie will be entering a new era of being quoted with a 6 in front and trading at levels not seen for seven years.”

He said the dollar’s new trading range under US70¢ would “potentially change the economic landscape for in 2016 and be a leg up for the Reserve Bank of ‘s efforts”. South African rand hit

The Aussie dollar’s 0.8 per cent slide since Friday, however, is positively benign compared to the carnage the South African rand endured on Monday.

The currency plunged as much as 9 per cent, the most since October 2008, before trading down 2.3 per cent at 16.6832 per US dollar in Singapore, as the market turmoil in China and a drop in regional sharemarkets deterred risk-taking.

The rand’s decline probably came after “a combination of stops and margin calls caused mass capitulation” by Japanese retail investors, Gareth Berry, a foreign-exchange strategist at Macquarie, wrote in a research note. The South African currency, which dropped 25 per cent last year, has been hurt by a slump in commodity prices, lacklustre economic growth and rising US interest rates.

“The huge spike in risk aversion last week, poor liquidity and position liquidation have hit the rand this morning,” said Robert Rennie, the global head of currency and commodity strategy at Westpac.

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