The Australian and New Zealand dollars were the only big movers on major currency markets on Tuesday, buoyed by steadier oil prices and hopes of more official action to support growth in China. The euro and yen gained ground against the dollar but, along with sterling, the major pairs were all in fairly tight ranges. Analysts, while still broadly predicting a stronger dollar from the start of 2016, are increasingly confident in ruling out further big moves before the end of December. The Aussie and Kiwi dollars both gained more than half a percent, while China's yuan was marginally higher against the dollar for a second day, halting falls that have taken it to its weakest since a devaluation in August.
BNP Paribas strategist Michael Sneyd pointed to signs of more stability in the last few days in prices of Australia's biggest export, iron ore, despite a 2-percent fall in Shanghai prices on Tuesday. "China and oil are factors this morning. What has been quite important for the Aussie is the bottom that has begun to form in iron ore over the past few days," he said.
Still, the contrast between a 35-percent fall in prices of iron ore since September, and a 4-percent gain for the Aussie in the same period, are at the heart of calls by BNP and others for the Australian currency to fall at the start of next year. "The Aussie has remained at about the same level despite the rise in US yields and fall in iron ore over the past 3 months. It should be down at 67-68 cents," Sneyd said. The Aussie rose 0.6 percent to $0.7237, while its New Zealand counterpart 0.8 percent to $0.6819. Bank of Tokyo-Mitsubishi currency economist Lee Hardman preferred the Kiwi because its commodity output makes Australia more exposed to a slowdown in China and its central bank more likely to cut interest rates next year.
"Australia is more closely linked to China and ... growth next year in China will continue to slow," he said. "It's more likely the Reserve Bank of New Zealand will be able to keep their stance unchanged going forward." Wrapping up a major meeting of China's Communist leadership, the government announced a series of reforms, including plans to make China's monetary policy more flexible and to expand the government's budget deficit next year.
In the daily fixings of the yuan this week, Beijing has halted the steady depreciation of the yuan since early December. On Tuesday, offshore rates were around a quarter of a percent higher at 6.5327 yuan per dollar. "As expected, the authorities have put a halt to things after that two-week run," the head of FX trading at one London-based hedge fund said. "A lot of people were hurt by the ECB)European Central Bank) meeting (on December 3) and on the majors that really does seem to be it for this year." The euro traded at $1.0943 up a further 0.3 percent after a blip higher in US trading on Monday. The dollar inched down 0.2 percent to 120.90 yen, having spent the previous day in a narrow range of 121.16-121.50.