New Zealand's dollar regained some ground after losing more than 2 percent earlier on Thursday, as China's yuan shot up in offshore markets on suspected state bank intervention, whetting investor appetite for risk. The yen slipped after comments by a Japanese lawmaker renewed speculation the Bank of Japan would loosen policy again. The kiwi had tumbled after New Zealand's central bank cut interest rates and said policy might be eased again if China's economy slows further. But the currency regained some ground as the offshore yuan rose more than 1 percent against the dollar.
Intervention by state banks was suspected, a move that took the market by surprise. Traders saw it as another gesture by Chinese authorities to shake out speculators and reduce expectations of further depreciation in the yuan after its devaluation in August. "The sharp and sudden rally in CNH during the European morning session has dominated conversations and spurred a slight 'risk-on' move," said a trader at a major bank in London.
After touching a low of $0.6256, the kiwi traded at $0.6298, still down 1.7 percent on the day. Australia's dollar, which often moves higher when risk appetite increases and which is seen as a liquid proxy for plays on China, gained almost 1 percent to trade at $0.7077. "The biggest risk that investors see at the moment would be a collapse in China, so if now the PBOC (People's Bank of China) pushes the renminbi stronger, then the market sees this as a signal that the situation is not so bad," said Commerzbank's head of FX strategy in Frankfurt, Ulrich Leuchtmann.
Bank of Tokyo-Mitsubishi UFJ's European head of global markets research in London, Derek Halpenny, said the Reserve Bank of New Zealand's rate was expected. What was more important was the signal that policy could ease further. "(RBNZ Governor Graeme) Wheeler gave enough to the market to be fully convinced that there's more to come," Halpenny said. "But (the NZ dollar) has come a long way now, so I'd be hard-pressed to be advising customers that it's a strong sell at these levels."
Traders said the yen fell after Bloomberg quoted Kozo Yamamoto, a member of Japan's ruling Liberal Democratic Party, as saying in an interview that the BOJ's policy meeting on October 30 would be a "good opportunity" for additional monetary easing. The dollar briefly rose to 121.38 yen, its highest since August 31, after Yamamoto's comments. It was last trading at 121.24 yen, up 0.6 percent on the day. Sterling reached a two-week high of $1.5449 after minutes from the Bank of England's latest policy meeting were released. Though policymakers voted 8-1 to keep rates at 0.5 percent, as expected, they sounded less worried than some had expected on external risks to the British economy.
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