TOKYO- The safe-haven dollar stayed firm against major peers while the yuan sank to a nine-month trough after China’s central bank unexpectedly cut key policy rates for a second time in three months on Tuesday to shore up the country’s sputtering economy.
The yuan weakened as far as 7.3115 per dollar for the first time since Nov. 4 in offshore trading before bouncing back as major state-owned banks were seen selling dollars to support the local currency. It was last down about 0.3 percent at 7.2985 yuan.
The dollar index which measures the currency against six developed-market counterparts including the euro and yen, was about flat at 103.08 after hitting a 1-1/2-month high at 103.46 on Monday, buoyed by demand for the safest assets following a spate of disappointing Chinese economic indicators that raised concerns about global growth.
Punctuating those worries, Chinese data on industrial output, retail sales and investment released shortly after the PBOC’s rate cut showed unexpected slowdowns.
“We’re fast approaching a phase where bets will be on for another round of stimulus” in China, said Matt Simpson, senior market analyst at City Index.
Yield differentials point to a possible break of last year’s low of 7.3746 yuan per dollar, “but headlines that China’s state banks have been supporting the yuan should serve as a reminder that Beijing will decide if or when that happens,” he said.
The Australian dollar which often acts as a proxy trade on China, dipped as much as 0.39 percent to $0.6463 but failed to breach Monday’s nine-month low of $0.6454.
The Aussie then bounced to last be 0.27 percent higher to at $0.65055, which was even more impressive considering both local wage data and the minutes of the Reserve Bank of Australia’s most recent meeting both suggested local interest rates have likely peaked.
Elsewhere, the US dollar pushed to a fresh nine-month high of 145.60 yen before retreating to be down 0.09 percent at 145.435.