The dollar edged down against the euro and yen in Asian trade on Tuesday, moving back towards a more than four-month low against the perceived safe-haven Japanese currency as crude oil prices continued to tumble.
Crude oil futures approached a 20 per cent drop since the beginning of the year, with both US crude and global benchmark Brent down more than 1 per cent.
China set another firm fix for its currency on Tuesday and stepped up a verbal campaign to convince markets it remains in control. But the yuan slipped slightly in early trade despite what dealers called aggressive intervention to support the currency.
The dollar slipped about 0.2 per cent from late North American trade to 117.56, after plumbing a low of 116.70 on Monday, its deepest nadir since August 24.
The euro added about 0.2 per cent to $1.0876.
“Interest rate differentials don't mean anything at the moment. Risk sentiment, oil prices, and China — people are just focusing on that now,’’ said Kaneo Ogino, director at foreign exchange research firm Global-info Co in Tokyo.
Yuan midpoint rate
The People’s Bank of China set the mid-point for the yuan at 6.5628, barely changed from the previous strong fix and higher than its late levels on Monday.
China’s central bank plans to keep the yuan basically stable against a basket of currencies, and fluctuations of the Chinese currency against the US dollar will increase, Chief Economist Ma Jun had said on the central bank’s website late Monday.
However, Ma added that the yuan will not be strictly pegged to a currency basket either, though no details were given.
Australian dollar
The Australian dollar, often used as a proxy for China plays because of because of Australia’s trade exposure to China, was down about 0.1 per cent at $0.6983, remaining above a four-month low of $0.6927 touched on Monday.
The dollar edged up about 0.1 per cent against its Canadian dollar to C$1.4225 after the loonie hit a 12 1/2-year low of C$1.4245 in the previous session.
Sterling stood at $1.4537, nursing losses after a plunge to a 5-1/2-year low of $1.4491 on Monday, amid expectations that the Bank of England is in no rush to tighten policy when it meets on Thursday.
“While no changes are expected from the central bank, the drop in energy prices and the volatility in the financial markets should make policymakers more nervous,’’ said Kathy Lien, managing director of FX strategy at BK Asset Management.
“Low inflation has been a big problem for the BOE — although the weaker currency helps to ease some of that pain," she said in a note to clients.
BOE rate hike
Analysts polled by Reuters do not expect BOE policymakers to opt for an increase in interest rates for the first time in more than eight years until the second quarter of this year. Some market participants expect the central bank to hold off even longer and refrain from hiking this year.
The BOE is seen eventually hiking its benchmark bank rate 25 basis points to 0.75 per cent by the end of June, according to the consensus forecast, from a record low 0.50 per cent that has stood since early 2009.