$A wins respite as China defends the yuan

The Chinese central bank’s moves to stabilise the yuan have given a boost to the Aussie dollar.

Wayne ColeReutersAugust 6, 20182:06pm

The Australian dollar had a firmer tone on Monday as Chinese efforts to steady its yuan helped stem speculative selling, at least for now.

The Aussie dollar was hovering at 74.01 US cents, having bounced from a 73.48 low on Friday.

The currency has oscillated between support around 73.10/18 US cents and resistance at 7465/84 for more than seven weeks now.

The latest bounce came as the US dollar took a knock from payrolls numbers that missed market expectations, though the overall report was still upbeat.

The Aussie also caught a bid against the euro, which dropped almost 0.7 per cent on Friday to its lowest in around six weeks at A$1.5605.

Aiding the Aussie had been efforts by China's central bank to stem a slide in its yuan.

The Chinese currency rebounded from a 15-month low on Friday after the PBOC raised its forward reserve requirement ratio to 20 per cent for financial institutions settling foreign exchange forward yuan positions.

The action makes shorting the yuan more expensive for speculators and the currency was firmer on Monday around 6.8090 per dollar.

Investors often short the Aussie as a liquid proxy for the yuan, reflecting China's importance as Australia's single biggest export market.

"The PBOC signalled it was getting uncomfortable with speculators seeing the currency as a one-way bet," said NAB senior economist David de Garis.

"It was not surprising then that the AUD recovered back up through 74 US cents."

"Barring new announcements on the tariff and trade front – a possibility that the market is alert to – this is likely to limit the downside of the Aussie for now."

Lurking in the background were concerns about Sino-US trade relations with Beijing last week announcing retaliatory tariffs on $US60 billion of US goods.

The New Zealand dollar followed much the same pattern as the Aussie, holding at $0.6753 after bouncing from $0.6721 on Friday.

The Reserve Bank of Australia (RBA) holds its August policy meeting on Tuesday and is considered certain to keep interest rates at record lows.

For the RBA, Tuesday will mark two years since it last altered policy – easily the longest period of stability since it formalised the cash rate in 1990.

Analysts polled by Reuters see little chance of a hike until well into next year, while the futures market implies around a 50-50 probability by August 2019.

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