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 The yuan, down by up to 3 percent in offshore trading this week,
steadied, with dealers reporting both outright intervention by China
through state-owned banks and temporary bans on Chinese banks
selling dollars.
The Australian and New Zealand dollars, perceived as the major
currencies most dependent on China’s economic and financial
prospects, were also both solidly higher, recovering some of this
week’s more than 3 percent slide.
"Its all just about what happens in China. That's the obsession at
the moment," said Derek Halpenny, European Head of Global Markets
Research at Bank of Tokyo-Mitsubishi UFJ in London.
"Given what's taken place there today we are back in risk on mode
and looking to the (U.S.) jobs report this afternoon. But I'm pretty
sure next week we'll get some more days like we have seen since the
start of the year."
The dollar was up 0.6 percent at 118.33 yen, pulling away from a
4-1/2-month low of 117.33 struck overnight as the region's equity
markets bounced after a brutal week. Against the euro, it gained 0.5
percent to $1.0861.
The yuan's tumble this week on both onshore and offshore markets has
sent currency investors scrambling for traditional safe havens like
the yen, Swiss franc and to a lesser extent the euro. The yuan was
fixed higher by the PBOC for the first time in nine days on Friday.
In the background there are also question marks over whether another
bout of turbulence from China, accompanied by a broader "hard
landing" for the economy, could stay the U.S. Federal Reserve's hand
on further rises in interest rates this year.
Expectations the Fed will follow up December's first quarter-point
hike in almost a decade are at the heart of most banks' trading
recommendations - chiefly for a weaker euro - this year. A strong
U.S. nonfarm payrolls report on Friday would bolster expectations of
more rate rises.
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"The biggest impact on markets is if the number is very soft, <150k
and negative revisions," said Steven Englander, head of currency
strategy at Citi in New York.
"Global pessimism would be the dominant result, even if the Fed rate
path is lowered somewhat. (I) would see it as triggering another
round of risk off, so a weaker dollar versus the yen, and maybe
European currencies."
The greenback was still poised to lose 1.6 percent against the yen
this week but is broadly flat against both the euro and a basket of
currencies.
The main issue for markets remains to what extent the yuan may
weaken further.
Sources told Reuters that China's central bank is under increasing
pressure from policy advisers to let the yuan fall quickly and
sharply, potentially by another 10-15 percent.
"Managing a stable USD/CNY, monetary policy autonomy, and an open
capital account simultaneously will be an extremely difficult
outcome to achieve, unless China is prepared to expend more FX
reserves," strategists at Barclays wrote.
"There are already signs that China's resistance to CNY depreciation
is fading."
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