The dollar and risk-sensitive currencies rose against the yen and euro on Wednesday as the yuan steadied and better than expected Chinese trade data eased some of the pessimism over the world's second-largest economy. The offshore yuan was flat in London trade as some calm returned following heavy intervention by Beijing to stem recent declines in the Chinese currency.
Some analysts estimate that the Chinese central bank may have sold $10 billion-$20 billion in the last week to prop up the yuan. The People's Bank of China (PBOC) fixed the daily mid-point for the yuan at 6.5630 to the dollar, little changed from the steady fixes of the previous two days, alleviating some of the fears that have weighed on investors' minds about a sharp and quick depreciation in the currency.
The fixing came as the central bank put a squeeze on offshore sellers of the currency by making it prohibitively expensive to speculate against the yuan. The dollar index rose 0.3 percent to 99.246, extending its recovery from this week's low of 98.252 set on Monday. Against the yen, the dollar rose 0.5 percent to 118.20 yen, extending its recovery from a 4 1/2-month low of 116.70 yen hit on Monday. The euro also fell 0.3 percent to $1.0822, from Monday's high of $1.0970.
"It is hardly surprising that safe haven currencies like the yen are under pressure. However, it is questionable how long this risk appetite will last," said Lutz Karpowitz, currency strategist at Commerzbank. Both the safe-haven yen and the low-yielding euro tend to gain at times of market stress because these currencies are often used to fund investment in risk assets, and consequently rise back up when there is a retreat from those assets.
Traders attributed the improved sentiment in global markets to Chinese data that showed exports and imports in December were both better than expectations. The Australian dollar, often used as proxy for China because of Australia's reliance on Chinese demand for raw materials, rose 0.6 percent to $0.7022, edging back from Monday's four-month low of $0.6927.
While Beijing appears to have stabilised the yuan for now, analysts say its long-term policy outlook remains unclear. Hence volatility in currency markets was likely to stay. "The (trade) data is certainly enough to help restore some degree of stability to the financial markets but is unlikely to remove the fears in the markets over the slowdown in China and how that will impact global growth and commodity prices," said Derek Halpenny, European head of global markets research at Bank of Tokyo Mitsubishi.
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