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 The yuan extended its losses, dragging the growth-linked Australian
and New Zealand dollars to six-year lows with it, while another set
of disappointing Chinese data bolstered safe-haven currencies such
as the yen.
The euro, meanwhile, rose, helped by the unwinding of euro-funded
carry trades in the yuan . The single currency hit a one-month high
of $1.11385, up 0.8 percent on the day. The dollar index fell to
96.691, while the greenback shed 0.5 percent to trade at 124.42 yen
<JPY=>.
"There are some question marks being raised about the timing of the
Fed hike," said Niels Christensen, FX strategist at Nordea. "The
euro is squeezing higher against the dollar, as Treasury yields
drop."
In China, the spot yuan fell to 6.44 per dollar, its weakest since
August 2011, after the central bank set its daily mid-point
reference at 6.3306, even weaker than Tuesday's devaluation. The
currency fared worse in international trade, touching 6.5888 yuan
per dollar, its lowest since early 2011.
Foreign exchange traders in Shanghai said Chinese state-owned banks
were selling dollars on behalf of the central bank, which was
intervening to keep the yuan around 6.43 against the dollar.
The latest PBOC moves came after it surprised markets on Tuesday by
aggressively lowering its guidance rate, pushing the yuan down
nearly 2 percent.
The Aussie, widely considered a more liquid proxy for China plays,
was trading flat at $0.7297, after plunging as low as $0.7217, its
lowest since mid-2009. The New Zealand dollar also fell to a
six-year low while the Norwegian crown fell to a 7-month low against
the euro.
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Chinese data released on Wednesday underscored Beijing's need to
prop up its economy. Factory output rose 6.0 percent in July from a
year earlier, falling short of forecasts. Fixed-asset investment and
retail sales figures also missed expectations.
The uncertain economic picture for China and the move to devalue the
currency fueled questions about the timing of the Fed's long-awaited
increase in interest rates, which many still believe could come as
early as next month.
Nevertheless, Treasury yields dropped and weighed on the dollar. The
benchmark 10-year note yield slipped to 2.06 percent, compared with
its U.S. close of 2.139 percent.
"While the move by the PBOC highlights the risks to the U.S.
outlook, we retain our call for a September hike, but believe the
probability has fallen somewhat, as the move may raise FOMC concerns
about global growth and inflation pressures," strategists at
Barclays said.
(Additional reporting by Lisa Twaronite; Editing by)
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