Yen surges to 4 1/2-month high as yuan slides further

Reuters Updated - January 19, 2018 at 02:35 PM.

yen

The yen rose to its highest against the dollar in more than four months on Thursday as investors looked for a haven after China guided the yuan aggressively lower, fuelling fresh anxiety about its economy and its policy intentions.

The dollar dropped to 117.66 yen, a level not seen since late August, and was last trading at 117.95 yen, still down 0.4 per cent on the day. The euro was down 0.3 per cent against the yen, close to Wednesday's nine-month lows.

The People's Bank of China set its official yuan midpoint rate 0.5 per cent weaker than Wednesday's fix. That was the biggest daily decline since last August, when Beijing surprised global investors by abruptly devaluing the currency almost 2 per cent.

"The lower yuan fixing probably signifies greater risks to the Chinese economy than we know of, leading to risk-off trades," said Jeremy Stretch, head of currency strategy at CIBC World Markets. "Its not surprising that the yen is gaining and we could see it rise further if stock markets continue to lose ground."

Global stock markets were in the red, tracking the Chinese market, which plunged 7 per cent at one point, leading to a nation-wide trading halt for the second time this week.

Markets regained some stability after the offshore yuan erased early losses of up to 1 per cent after suspected intervention by the authorities.

Nevertheless, the softer-than-expected fixing in onshore trading led to speculation that the Chinese authorities are engineering a weaker yuan to support exports. Surveys on economic activities in China so far this year indicate its economy is still slowing.

"It's been known that China's economy is not in a good shape. What markets don't like above all is that there is no telling what the Chinese central bank is trying to do on the yuan," said Teppei Ino, currency analyst at Bank of Mitsubishi-Tokyo UFJ in Singapore.

The uncertainty on China led traders to sell the Australian dollar, often used as a liquid proxy for China plays.

The Aussie fell to a two-month low of $0.7025, having shed more than three percent since the start of new year. It was last trading 0.2 per cent lower at $0.7056.

The euro was flat against the dollar at $1.0778, having gained earlier after investors saw a dovish slant in minutes of the Federal Reserve's December meeting.

The minutes showed some policymakers expressing concerns inflation could get stuck at dangerously low levels, even though they decided to raise interest rates.

Federal Reserve Vice Chairman Stanley Fischer said forecasts of four rate increases this year were close to his expectations, but global uncertainty could change that.

Published on January 7, 2016 09:02