The rise of the dollar is halting; yuan fell to the lowest level in 16 months Reuters writes

From Rae Wee

SINGAPORE (Reuters) – The dollar weakened on Monday but held near a two-year high as traders awaited a flurry of U.S. economic data this week led by December’s non-farm payrolls report for further clues on the Federal Reserve’s rate outlook.

In Canada, Prime Minister Justin Trudeau is increasingly likely to announce his intention to step down, although he has not yet made a final decision, a source told Reuters. The Globe and Mail previously reported that Trudeau was expected to announce his resignation as early as Monday.

Markets seem to have largely factored this in and could welcome an election to clear things up, leaving the US dollar down 0.36% against its Canadian counterpart at C$1.4395.

Also in focus was the Chinese yuan, which on Friday weakened above the psychological level of 7.3 per dollar in the onshore market for the first time in 14 months, after the People’s Bank of China (PBOC) aggressively defended that key threshold for much of December.

It fell to a 16-month low of 7.3289 to the dollar, while its offshore counterpart rose 0.06% to 7.3558.

“The PBOC appears to have stopped defending that 7.30 level,” said Ray Attrill, head of FX strategy at National Australia Bank (OTC:) (NAB).

“It just brings a lot more attention to what the PBOC is doing from a fixing perspective today and in the coming days, and whether or not they’re allowing USD/CNY to trade into a higher trading range now or not, because I do I think that’s going to have implications to wider Asian currencies, but also to i.”

Before the market opened on Monday, the PBOC set the mid-rate, around which the yuan is allowed to trade within a 2% range, at 7.1876 to the dollar.

The Australian and New Zealand dollars, which are often used as liquid substitutes for the yuan, were barely affected by the Chinese currency’s decline on Friday, as both traded roughly 0.2% higher in the Asian session.

The Aussie last bought $0.6227, while the Kiwi rose 0.22% to $0.56245.

TRUMP AND STOPE

In the broader market, investors kept an eye on Friday’s closely watched US jobs report for further clarity on the health of the world’s largest economy.

A host of Fed policymakers are also scheduled to speak this week, where they are likely to echo their colleagues’ recent comments that the fight to tame inflation is far from over.

The dollar continued to strengthen on expectations of fewer Fed cuts this year, climbing to a two-year high last week pushing the euro to a more than two-year low.

The common currency was last little changed at $1.0310, while it weakened slightly to $108.89.

Sterling rose 0.13% to $1.2440. The yen fell 0.24% to 157.66 per dollar.

Uncertainty over US President-elect Donald Trump’s plans for massive import tariffs, tax cuts and immigration restrictions after his inauguration on January 20 also provided additional safe support for the dollar.

“There’s still a huge amount of uncertainty in terms of how quickly we’re going to see policy announcements and how well the reality will match the rhetoric, so I think that leaves a huge amount of uncertainty in the markets,” NAB’s Attrill said.

“It’s just really hard to see the US dollar doing any damage … at this point, you have to be pretty bold to bet against the dollar continuing to strengthen.”