The yen surrendered some of this week's gains and the Australian dollar gained on Thursday after Chinese stocks showed signs of stemming a rout that has rippled through global markets. The 6 percent gain in Shanghai shares was enough to prompt some optimism from investors after a rough month dominated by the euro zone's troubles with Greece and a drop of more than 30 percent in China's main market indexes.
Those elements were behind the biggest one-day push this year into the perceived safety of the yen on Wednesday. It fell just over half a percent in value to 121.475 yen per dollar in morning trade in Europe on Thursday. "China is definitely setting the tone for forex markets at the moment," said Thu Lan Nguyen, G10 currency strategist with Commerzbank in Frankfurt.
"We were in risk-off mode for the last couple of days. The big question is: are the measures that China has taken sustainable, given that most stocks are not tradable at the moment?" The euro had fallen back by a quarter of a percent against the dollar by midday in Europe, having topped $1.11 in Asian trade. With the exception of a dip at the start of this week, however, the single currency has held up well in the face of Greece's troubles, defying the predictions of some analysts, as the country risks tumbling out of the euro zone. "There's so much talk about Greece, but precious little reaction really," said a senior trader with one international bank in London.
"For me China and the broader outlook for the global economy has been what has driven currencies for the last few weeks." A fall in US yields following the release of minutes of the Federal Reserve's June meeting offered little hope to dollar bulls. The dollar index dipped as low as 96.123 in Asian trade. It was trading flat at 96.381. While the currency moves on Greece have been muted, attention will still be glued to proposals expected from Athens for a deal to keep Greece and its banks financially afloat.
Prime Minister Alexis Tsipras was huddled with advisers, pulling together reforms that are expected to include much tougher measures than those included in the previous plan from creditors, rejected by Greeks in a referendum on Sunday. The Aussie dollar gained 0.8 percent against the yen and 0.2 percent against the dollar on the back of the Chinese market moves and some better domestic data, taking it back above 74 US cents from a six-year trough of $0.7372. "Our short-term fair-value model indicates that the Aussie appears oversold and entered a bullish signal yesterday targeting its fair-value of 0.7650," analysts from French bank BNP Paribas said. "In our view there is further room for AUDUSD to rally."
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