Business

$A higher as yuan rebound calms nerves

The Australian dollar, along with other currencies from commodity exporters, rebounded and the yen dropped from close to a four-month high after China's central bank helped calm investors' nerves by strengthening the yuan fixing by the most in almost a month.

The Australian dollar outperformed 15 of 16 major peers after slumping last week to the lowest level in almost seven years. China, which is due to publish a slew of economic data this week, will report on Tuesday that fourth-quarter gross domestic product grew at an annual rate of 6.9 per cent, according to economist estimates. The country is a major export destination for Australia and Canada. The Canadian dollar climbed for the first time this year.

"We are seeing stability in sentiment which has been the primary driver of the foreign-exchange market," said Peter Rosenstreich, head of market strategy at Swissquote Bank in Gland, Switzerland. "That has given well-oversold commodity currencies room to recover. However, we don't expect this bullish momentum to be extensive."

The Aussie dollar rose 0.2 per cent to US68.79¢ as of 10.55am New York time, down from an overnight peak of US69.28¢.

Financial markets in the US are closed Monday for a public holiday.

In European trading, the US dollar gained around a quarter of a per cent against the euro to $US1.0893 and 0.5 per cent to 1.0050 francs. It also inched higher to 117.33 yen.

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Market participants remained sceptical about the prospects for a sustained improvement in risk appetite, however, given the selloff in global equities seen so far in January.

Data from China, echoing official reserves numbers, showed selling of yuan by Chinese banks more than doubled to the equivalent of $US95 billion in December from November.

"I think we will continue to see demand for yen in the short term," said Jesper Bargmann, head of trading for Nordea Bank in Singapore. "I think the market is nervous and we will see further risk aversion."

Investors in Asia had taken aim at the Canadian dollar, driving it to a near 13-year low of $C1.4650 against the US dollar on expectations the Bank of Canada will cut interest rates as early as this week. But some in Europe were already arguing last week that the extent of the falls in the Canadian dollar - another 7 Canadian cents weaker against the greenback so far in January - might stay policymakers' hand on further rate easing.

"That squeeze we've seen on the CAD today is clearly about some pullback on expectations for this week's meeting," said a dealer with one international bank in London. Traders have raised the odds of an interest-rate cut by the Bank of Canada at its January 20 meeting to 64 per cent, from 17 per cent on December 31, according to Bloomberg calculations based on trading in overnight index swaps.

The Canadian dollar had recovered to gain 0.2 per cent on the day against its US counterpart in early European trade.

The People's Bank of China raised its daily reference rate for the yuan by 0.07 per cent on Monday, the most since December 21, after weaker-than-expected fixings earlier this month rattled financial markets worldwide.

The central bank said it will impose reserve-requirement ratios on yuan deposited onshore by overseas financial institutions from January 25, without saying what level would be used. While a slowdown in China continues to hurt exporters, signs that the world's second-biggest economy is stabilising and increased clarity on the timing for US rate increases are bolstering speculation that commodities will rebound from their worst year since 2008.

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