Dollar steadies after one-two punch from Aussie, Chinese yuan

London, July 20 (BNA): The dollar was mostly stable against the euro and the yen today, Thursday, but fell against the Australian dollar after local jobs data exceeded expectations, and against the yuan, which received a boost from Chinese monetary authorities.

The dollar is heading for its first weekly gain in nearly a month against a basket of currencies, after making the biggest bullish advance against the British pound. The pound has lost 2.3% of its value this week after data on Wednesday showed that inflation in the UK finally seemed to be easing.

According to Reuters, on Thursday, the Australian dollar was the standout performer, rising as much as 1% at one point, after employment beat expectations for a second straight month in June, leaving the door open for more rate hikes from the RBA.

Meanwhile, the Chinese yuan rose after monetary authorities in Beijing relaxed a rule allowing companies to raise money abroad, while Chinese state-owned banks are believed to have sold dollars on the offshore market.

The dollar index traded almost unchanged against a basket of currencies, but remained within sight of a 15-month low this week, although individual currency reactions to the data are likely to be choppy at the moment, according to Societe Generale Fx strategist Kit Jucks.

“Partly because we are at that point in the cycle where we are debating who is going to pause, who is going and how close we are (to the peak), and so each new piece of information has an exaggerated effect on the outlook for the global price cycle in individual countries,” Jukes said.

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The Australian dollar was last up 0.9% at $0.683 while the New Zealand dollar got a sympathy boost and rose 0.4% on the day to $0.6286.

China left its lending standards unchanged on Thursday, and the central bank added that it had raised the cross-border financing ratio that dictates the maximum amount a company can borrow as a proportion of its net assets, allowing domestic companies to tap foreign markets for funds.

Encouraging more capital inflows may add to the recent downward pressure on the yuan.

The dollar last fell 0.65% on the day against the offshore yuan, which strengthened to 7.186 per dollar.

Ken Cheung, chief Asian currency analyst at Mizuho Bank, noted that the increase indicates the People’s Bank of China’s (PBOC) policy directive to “defend (the yuan) and limit excessive exchange rate volatility along with a strong bias in pegging the CNY.”

In the broader currency market, the British pound is heading for its fifth daily loss, its longest period of decline since last fall, after British inflation data on Wednesday fell short of market expectations.

Evidence of cooler inflation prompted investors to scale back their expectations of how much more the BoE would raise interest rates. A rally above 6% from 5% right now is a long way off, according to Money Markets.

The British pound fell 0.2 percent to $1.2916.

“I think the market is a bit more reasonable now with its expectations of a rate hike by the Bank of England,” said Joseph Capurso, head of international and sustainable economics at the Commonwealth Bank of Australia.

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The euro was last up 0.1% today at $1,121, as investors look ahead to the European Central Bank’s monetary policy meeting next week.

Policymakers at the European Central Bank have taken a more dovish tone of late. Board member Yiannis Stournaras was the latest to point to higher interest rates in the future after the potential 25 basis point increase in July.

The Japanese Yen strengthened, leaving USD/JPY down 0.2% today at 139.42.


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