CANBERRA: The Australian dollar steadied as the People’s Bank of China moved to stabilise its currency, but concerns around the impact of the renminbi’s devaluation on the Australian economy might limit future gains.
In late trade on Monday the Australian dollar was buying US73.74¢, strengthening slightly from its US73.65¢ open. In its daily morning “fix”, China’s central bank moved the midpoint from which its currency can deviate by just 0.1 per cent to 6.3969 yuan to the US dollar.
The move came almost a week after China stunned the markets by slashing its currency’s valuation by 1.9 per cent and 1.6 per cent in two days, sending the dollar on a 1 per cent slide both days.
UBS economist George Tharenou said China’s move was a reaction to its sharply weaker economy. He expected the Australian dollar to depreciate further, to US70¢ by the end of 2015, as that weakness weighed on commodity prices and capital expenditure.
“If the Fed hikes were ‘pushed out’ it would raise the risk that [the Australian dollar] fails to sufficiently insulate Australia’s economy from a weaker China, which could pressure the [Reserve Bank of Australia] to ease again,” he said in a research note.
The release of inflation data on Wednesday night and the minutes from the Fed’s August monetary policy setting committee meeting are shaping as key events for the Australian unit this week.
Westpac senior currency strategist Sean Callow said China was already enjoying cheap commodity prices from Australia before the devaluation, because of its increasing supply.
