Yuan turns sharply higher, yen eases in Europe

China's yuan turned sharply higher on foreign exchange markets on Monday, heading for its biggest daily gain in four months against the dollar in offshore trade after reports of another round of aggressive intervention by Beijing. With Chinese stocks sinking a further 5 percent, global financial markets were struggling to shake off the jitters from last week's dramatic falls in the yuan.
The dollar rose against the euro while the yen hit five-month highs in Asian trade only to retreat after moves by the People's Bank of China (PBOC) in Hong Kong in money markets helped the yuan gain more than 1 percent. The Australian dollar, the main proxy for Chinese sentiment in the G10 list of major developed world currencies, recovered from a four-month low to stand 0.8 percent higher at $0.7013.
"The Chinese authorities clearly want to signal that it will not be a one-way trade in the renminbi," London-based Rabobank currency strategist Jane Foley said. "But most people would recognise that were you to take away the interventions it is a currency that would fall." The tightly controlled onshore rate for the yuan strengthened 0.35 percent to 6.5701 per dollar after the PBOC set its daily mid-point rate higher for a second day. Offshore rates gained 1.2 percent to 6.6030, rivalling the yuan's biggest one-day move upwards since the launch of the offshore market in 2010.
One big question traders and analysts are asking themselves is whether a volatile start to the year will continue now that all the market's major players are back at work. At the very least the speed of the yuan's fall, and what it implies for other emerging currencies - including South Africa's rand, at a record low on Monday - is colouring the big theme for currency investors of divergence between monetary policy in the United States and the rest of the developed world. The dollar gained 0.4 percent to 117.71 yen, having touched its lowest since late August at 116.70 yen. The euro eased 0.3 percent to $1.0898, well above Friday's low of $1.0803.