The dollar gained against the safe-haven yen on Wednesday, boosted by a surge in global stocks amid a recovery in risk appetite that also drove rallies in commodity currencies such as the Australian and Canadian dollars.

The dollar was up 0.4 per cent at 120.29 yen, extending gains from an overnight low of 118.885, with a spike in US debt yields on reduced risk aversion helping the greenback.

The US currency followed a now established pattern of moving with the ebb and flow in risk appetite, which tends to favour the safe-haven yen and to a lesser degree the low-yielding euro when assets such as equities are widely sold.

It was the dollar’s turn to advance as European and US stocks surged overnight, and then Japanese and Chinese equities rallied.

“I don’t see an end to risk sentiment driving currencies any time soon,’’ said Shusuke Yamada, chief Japan FX strategist at Bank of America Merrill Lynch in Tokyo.

“It all goes back to China, where opaqueness remains over its currency market, monetary policy and capital controls. The forex market is most on edge about a further possible devaluation of the yuan.’’

“Until China’s stance in these areas is clarified, currencies will retain their correlation with broader risk sentiment,’’ he said.

China volatility

China sent shock waves by devaluing the yuan last month, which deepened concerns about its slowdown and the global economy, sending equities tumbling world-wide. But so far, there’s scant evidence that volatility in China has hurt its domestic economy or the global one.

The Australian dollar touched a one-week high of $0.7071, gaining more than 2 per cent over the past two days. The rally whisked the Aussie away from a 6-1/2-year low of $0.6892 struck on Monday.

“Equity movements continue to impact the dollar and yen, but they won’t be taking centre stage today. Instead, the Canadian and New Zealand dollars, which are likely to move more ahead of their central bank policy decisions, will gather much of the attention,’’ said Masafumi Yamamoto, senior strategist at Monex in Tokyo.

Interest rate cut

The Bank of Canada is widely expected to keep interest rates unchanged at 0.5 per cent in light of recently upbeat data after already cutting twice this year, although market participants are readying for possibly dovish undertones from the central bank. The decision is due at 1400 GMT.

The Reserve Bank of New Zealand (RBNZ), on the other hand, is expected to cut interest rates to 2.75 per cent on Thursday. The focus is now on the language accompanying the policy decision.

“The forecasts and language will probably imply one further OCR (official cash rate) cut,’’ wrote Sean Callow, a senior currency strategist at Westpac in Sydney. He said his bank ‘remains on the dovish side of consensus in terms of how low the OCR is eventually cut”’.

The Canadian dollar nudged up 0.2 per cent to C$1.3181 against the greenback after gaining 0.8 per cent overnight as crude oil, a major export for Canada, surged on the back of a global equities rally. A tumble in crude oil prices had sent the loonie to an 11-year low of $1.3353 last month.

The New Zealand dollar was up 0.7 per cent at $0.6389, after gaining more than 1 percent overnight. The kiwi slid to 6-year low of $0.6200 late in August.

The euro dipped 0.2 per cent to $1.1177, stuck in a narrow $1.1230-$1.1122 range this week.

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