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Euro, Aussie gain as China signals a steady FX hand
In a statement on the People's Bank of China's website, Governor Yi Gang said the central bank was closely watching fluctuations in the foreign exchange market and would seek to keep the yuan at a stable and reasonable level.
Protracted weakness in the Chinese currency raises the prospects of capital outflows and a slowdown in the world's second-biggest economy, creating a new source of concern for currency markets grappling with rising threats to global trade.
The central bank's comments snapped a 10-day losing streak in the value of the renminbi which has seen it lose nearly 4 per cent against a trade-weighted basket and nearly 4.5 percent against the dollar over that period.
The weakness sent shock waves through global markets on concerns Beijing may be engineering another devaluation of its currency in a growing trade dispute with the United States.
"Though today's moves by Beijing have restored some calm in markets, the broader picture still remains worrisome and unless we see a marked weakening in US data, the broader trend of yuan weakness seems in place," said Georgette Boele, a senior currency strategist at ABN Amro Bank in Netherlands.
The yuan fell to 6.7204 per dollar, its weakest since Aug 7 last year, before recovering to trade at 6.6466 per dollar on Tuesday.
The Australian dollar extended gains and rose 0.74 per cent on the day at 0.7384 per dollar, while the euro rose 0.4 per cent to an intraday high of US$1.1673 before trimming some gains.
The dollar weakened against a basket of rival currencies after notching up three consecutive months of gains as investors wait for minutes of the US Federal Reserve's June meeting and jobs data that should confirm whether policymakers will raise interest rates twice this year.
The Fed will release minutes of its June meeting on Thursday, and investors will parse the data and the statements to gauge whether it is still on track to raise interest rates twice more in 2018. Monthly payrolls data will be released on Friday.
For now, analysts remain bullish on the dollar in the near term. REUTERS