Evergrande jitters dent yuan, commodity currencies; US dollar gains

London

THE offshore Chinese yuan skidded to three-week lows on Monday, dragging down other risk and commodity currencies as worries about property developer Evergrande's solvency spooked financial markets, while the safe-haven dollar rose. Only on Sept 17, the yuan hit its highest level in three months at 6.4297 per dollar.

The sharp slump in the currency on Monday came on the back of warnings from Chinese regulators that Evergrande's insolvency could spark broader risks in the country's financial system if not stabilised. Evergrande has been scrambling to raise funds to pay its many lenders, suppliers and investors. A deadline for the company to make an interest payment to creditors looms this week.

The fall in the yuan down to 6.4698 yuan per dollar - its lowest since Aug 31 - also weighed on the Australian dollar, New Zealand dollar, and Norwegian crown, which all hit levels at or near three-week lows.

The Japanese yen strengthened 0.2 per cent to 109.72 yen per dollar, although that was not enough to stop the dollar index benefiting from a safety bid. Sterling fell 0.5 per cent to a four-week low of US$1.3662.

Against a basket of peers, the greenback was up almost 0.2 per cent on the day and at its highest in four weeks. Across the Atlantic, the euro was 0.15 per cent lower on the day at US$1.1707 by 1041 GMT.

The Canadian dollar, also a commodity currency that correlates with risk sentiment, hit its lowest level in four weeks at C$1.2815 per dollar.

Looking forward this week, no fewer than a dozen central banks hold meetings, but traders' top focus is on the Fed where expectations for a tapering signal are keeping the dollar bid. The US central bank concludes a two-day meeting on Wednesday and consensus is that it will stick with broad plans for tapering this year but will hold off providing details or a timeline for at least a month.

However, creeping US yields - which at the 10-year tenor rose for a fourth straight week last week - point to risks of a hawkish surprise or a shift in projections to show interest hikes as soon as 2022.

The Bank of England is expected to leave policy settings unchanged, but traders see potential for gains in the pound if the bank adopts a hawkish tone or more members call for asset-purchase tapering.

There is no expectation of policy shifts at the resolutely dovish Bank of Japan, but Norway's Norges Bank is expected to become the first G-10 central bank to lift rates. REUTERS