Aussie dollar rises as risk appetite picks up

London

THE Australian dollar and offshore Chinese yuan climbed on Tuesday as risk appetite picked up, although the spread of a novel coronavirus in China remained a threat.

The Australian dollar rose by 0.5 per cent to US$0.6725, pulling away from a 10½-year low of US$0.6670 touched last October, after the Reserve Bank of Australia left its main cash rate unchanged at 0.75 per cent.

Paring back some gains, it was last up 0.3 per cent at US$0.67140.

The offshore yuan, which gained as much as 0.4 per cent to 6.879 per dollar and above a one-month low of 7.0230 per dollar in earlier trade, also pared back gains, and was last up 0.2 per cent at US$6.9972.

Chinese stocks ended Tuesday's session higher as the central bank vowed to stabilise the market, after a rout linked to the coronavirus outbreak erased almost US$400 billion off the market value of Shanghai's benchmark index on Monday.

The death toll in China from the outbreak rose by a record 64 from the previous day to 425, mostly in Hubei, the province where the virus is thought to have originated. The number of cases in China rose by 3,235 to 20,438.

"The speed at which these new infections are increasing is slowing down, which is something that at least shows we are in a situation where this is... not something like a global catastrophic event," said Commerzbank FX strategist Ulrich Leuchtmann.

Safe-haven currencies, such as the Japanese yen and Swiss franc, were down 0.2-0.3 per cent on the day.

Jane Foley, senior FX strategist at Rabobank, said: "The big question is how long this improvement in risk appetite might last... unless we see a definite peak in the number of cases being diagnosed, it's really quite possible that risk appetite will falter again."

With risks to growth mounting, China's central bank is likely to lower its key lending rate - the loan prime rate (LPR) - on Feb 20, and cut banks' reserve requirement ratios (RRRs) in the coming weeks, sources involved in the internal policy discussion told Reuters.

Mr Leuchtmann said: "This I find very interesting, because what we saw over the last 11/2 years was that the PBOC (People's Bank of China) was not very aggressive when it came to addressing cyclical economic factors."

Elsewhere, Britain's pound rebounded from a near-six week low against the US dollar that it hit in earlier London trade. It was last up 0.1 per cent at US$1.3012. Sterling has been under pressure from worries over a hard Brexit amid a tough stance taken by Prime Minister Boris Johnson on European Union trade talks. REUTERS