TOKYO – The dollar fell against major peers on Tuesday as China set the official yuan exchange rate at the strongest since abandoning its peg in 2005, which helped support demand for other units.
The Australian dollar led gains in major currencies as the move by the People’s Bank of China (PBOC) encouraged broad dollar selling.
Earlier, the greenback had found support as concerns about surging COVID-19 cases and uncertainty about US runoff elections in Georgia spurred a retreat in US stocks from record highs to start the year and kindled demand for safer assets.
While investor caution about the yuan’s heady rally prompted some later selling in the Chinese currency on Tuesday, the PBOC’s action nonetheless lifted risk sentiment in currency markets.
“If the Chinese currency is going up, it’s providing a degree of support for Asian currencies in general, and I suspect that’s why the US dollar is partially reversing the gains that we saw from Wall Street time,” said Ray Attrill, head of FX strategy at National Australia Bank in Sydney.
“It’s a very big move by any historical yardstick, and I don’t think you can ignore that.”