Analysts at National Australia Bank think it is more than coincidence that the dollar/yuan pair broke 7.2 in the same week Japan abandoned its negative interest rate policy only to see the yen fall.
Against the yen, the yuan has made a three-decade high, which NAB analysts think may have motivated China’s FX authorities to loosen their grip on the currency.
“China sensitivity to the CNY/JPY exchange rate makes sense in the context of Beijing not wishing to gift Japan a competitive advantage in the many areas where China and Japan compete in global markets,” said NAB analysts Ray Attrill and Rodrigo Catril.
Unless, or until, dollar/yen stabilises, they may continue to let the yuan weaken leaving the Australian dollar under pressure too since it can often trade in sympathy with the yuan.
Aussie dollar short positions jumped last week and the currency has struggled to escape a narrow range this year. The New Zealand dollar, also sensitive to the yuan, has fallen through support to four-month lows and looks to be under pressure.
The European calendar is fairly bare on Tuesday, while second-tier data is due in the U.S. with consumer confidence, manufacturing, services and durable goods figures expected.
Good Friday is a holiday in most markets but is also when the U.S. publishes the Fed’s favoured measure of inflation.
Asian stocks slipped slightly with the yuan on Tuesday, while policymakers’ warnings of possible intervention kept the yen from falling and it held at 151.38 per dollar .
