SINGAPORE- The yuan strengthened on Tuesday after China’s top leaders pledged to step up policy support for the country’s flailing economy, while the euro briefly hit a two-week low as a worsening business downturn muddied the euro zone rate outlook.
The yuan surged more than 0.5 percent in both the onshore and offshore markets in Asia trade as investors cheered comments at the closely watched Politburo meeting, though many were still seeking out specific details on greater stimulus measures.
The offshore yuan last bought 7.1540 per dollar, while the onshore yuan stood at 7.1535 per dollar.
“Overall, the sheer range of issues that the meeting touched upon goes beyond what the markets had anticipated,” said Tommy Xie, head of Greater China research at OCBC.
“While the sweeping breadth of the topics was appreciated, the execution and depth of these policies will be the real test.”
Also propping the yuan were China’s major state-owned banks selling US dollars to buy yuan in both onshore and offshore spot markets on Tuesday, sources told Reuters.
The positive sentiment from China also lifted the Australian dollar, which is often used as a liquid proxy for the yuan.
The Aussie was last 0.3 percent higher at $0.6760, while the New Zealand dollar rose 0.1 percent to $0.6210.
Elsewhere, the euro gained 0.12 percent to $1.1075, after slumping to a two-week low of $1.1059 earlier in the session, on the back of a survey on Monday which showed euro zone business activity shrank much more than expected in July.
That reignited recession fears and caused the single currency to slide more than 0.5 percent in the previous session, as traders trimmed their expectations of future rate hikes by the European Central Bank following this week’s likely 25-basis-point increase.
“The extension of the weakness in the manufacturing sector as well as services, and Germany, in particular, being a lot weaker than expected … that’s putting some question marks around the rhetoric that we should expect from the ECB on Thursday,” said Rodrigo Catril, senior currency strategist at National Australia Bank. – Reuters
