The Australian dollar firmed on Monday, strengthened by a record trade surplus for China and a revaluation of the yuan against a weakened greenback as the country's central bank resumed its daily fix of the currency.
In late-afternoon trade, the Aussie was fetching US71.67¢, up from around US71.15¢ in early trade and compared with around US71¢ at the same time on Friday.
The sharpest intraday spike in the local unit came following the release of January trade figures from China showing larger-than-expected falls in both import and exports in the month.
The net result was a stronger trade and current account balance, a position which usually supports currency stability. The People's Bank of China had earlier resumed its daily fix of the onshore yuan, increasing it 0.3 per cent to 6.5118 to the US dollar.
The offshore yuan immediately traded up through the onshore rates to be around 6.4951 in the late afternoon, Australian time. The onshore unit later overtook it, to 6.4915 to the US dollar, it's highest level this year.
The resumption of Chinese market trading this week had puts the spotlight back on the country's currency, whose orderly depreciation has been threatened in recent months by capital flight and US dollar weakness.
People's Bank of China (PBoC) governor Zhou Xiaochuan at the weekend sought to head off further speculative attacks on the offshore yuan.
The yuan's daily movements help determine the onshore fix by authorities.
Mr Zhou dismissed speculation about further capital controls to limit flight.
He said there was no basis for further currency devaluation.
China's foreign exchange reserves shrank in January to their lowest level since 2012, suggesting the PBoC sold US dollars to prop up the yuan.
Greenback weakness in recent weeks also helped stabilise the Chinese currency, but not before the country reported $US99 billion in reserves drawdown in January. This added to the $US108 billion in December and brought the total decline since mid-2014 to $US762 billion.
"With $3.2 trillion of reserves still left, a key question is how much more capital remains in China that wants to leave," JPMorgan wrote in a research note on Monday, "and, to the extent this amount is larger than policymakers are willing to part with in terms of foreign exchange reserves, at what exchange rate these flows would be staunched."
IG Markets strategist Evan Lucas said Mr Zhou's comments suggested the PBoC was still determined to gradually liberalise the currency as part of broader financial market reforms.
"The likelihood of a sharp one-off interventionist devaluation in the [yuan] is remote, bordering on never," he said.
"[Mr Zhou] did leave the option to allow a gradual depreciation in the [yuan] but, in short, the fear around a Chinese intervention should dissipate."
Mr Zhou's comments, which were published in Caixin magazine, came ahead of a crucial week of market trading in China after a long break for the Lunar New Year.
Shares, which had been spared last week's broad sel-off across the world, played catch-up, with the main Shanghai Composite index down around 1.6 per cent in afternoon trade on Monday.
The Australian dollar, along with a range of currencies, has firmed in recent weeks as creeping doubts about the pace of US Federal Reserve interest rate increases has undermined the greenback.
The greenback weakness is also noted in a reduction in long bets on the US dollar, weekly data from leveraged funds collated by the Australia and New Zealand Banking Group shows.
The bank also found that net short positions on the euro, British pound and Australian and New Zealand dollars had been cut during the week to last Tuesday.