The US dollar lurched higher on Tuesday as China allowed its yuan to fall to levels last seen in 2012, a shift that could provide a competitive boost to exports for the world’s second-largest economy.
[contextly_sidebar id=”ikTGDHaw58YTOfYnm65eKoVBAlFdFwlU”]Asian stocks turned mixed as investors weighed the implications of the surprise move, which seemed to end months of officially sanctioned yuan strength.
China’s central bank set the midpoint for its currency at 6.2298 per dollar, down from Monday’s fix of 6.1162, and said it was aiming for a depreciation of 2%.
Markets reacted by selling the Australian dollar, often used as a liquid proxy for the Chinese currency. The Aussie sank to $0.7314, compared with $0.7430 ahead of the news.
Other currencies in the region also lost ground to the US dollar as investors reasoned they would need to fall to keep exports competitive with China.
“As this event has boosted the US dollar and dampened local currencies, it is likely to be welcomed by regional central banks,” said Annette Beacher, chief Asia-Pacific macro strategist at TD Securities.
“Any policies that boost the outlook for Chinese growth are positive for the growth outlook more broadly.”
Against a basket of currencies, the US dollar gained 0.4% to 97.506. The euro eased to $1.0977, while the dollar firmed to ¥124.75.
Chinese share markets were choppy on the news and eventually turned lower. The CSI300 index was down 0.7%, while Shanghai stocks slipped 0.6% after scoring hefty gains on Monday.
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Source: Fin24
