Following a report that Saudi Arabia is in active discussions with Beijing to price part of its oil supplies to China in the currency, the Chinese yuan reversed previous losses and soared to the day’s highs.
The offshore dollar-yuan pair declined 0.1 percent to approximately 6.3871 after reaching a high of 6.4108 earlier in the day. The onshore yuan increased as well. On Wednesday, the Australian dollar soared as comments from a top Chinese official bolstered prospects for additional stimulus. In contrast, the US dollar traded near a five-year high versus the yen; markets expect the Federal Reserve to raise interest rates for the first time in three years.
Australian Dollar Reacts
“Because Australia and China have such a close economic link, the Australian dollar will constantly fluctuate in response to news from China,” Yukio Ishizuki, senior currency analyst at Daiwa Securities, said. “Aside from China, it’s pretty simple for the Australian dollar to gain right now on any favorable commodity news.” In the offshore market, the US dollar fell 0.30 percent to 6.3629 yuan, its sharpest daily decrease in a month. The dollar was at 118.305 yen; on Tuesday it hit 118.450 yen for the first time since January 2017. The dollar took a hit from a jump in long-term Treasury rates to a more than two-year high ahead of the Fed decision. At the same time, the yen was weakened by rising oil and other commodity prices; this overall weakened Japan’s terms of trade.
Money markets have fully priced for the first-rate hike in three years, with a 13 percent chance of a half-percentage-point raise. Meanwhile, the euro extended its rebound from a nearly 22-month low earlier this month on expectations of a breakthrough in Russia-Ukraine talks to end the crisis. This helped keep the dollar index below 99, down from as high as 99.415 at the start of last week. The dollar index measures the greenback against six peers; it weighs on the euro most. The index was last trading at 98.853, down 0.08 percent from the previous day’s close.
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