Yuan rises for first time in 4 days, dollar falls on profit-taking as March rate rise likely

The Japanese yen jumps as investors seek safety after North Korea’s launch of ballistic missiles

PUBLISHED : Monday, 06 March, 2017, 1:27pm
UPDATED : Monday, 06 March, 2017, 4:46pm

The Chinese yuan advanced Monday against the US dollar after the People’s Bank of China guided the currency higher for the first time in four straight sessions, while the Japanese yen also jumped amid growing geopolitical tensions after North Korea fired ballistic missiles into Japanese waters.

Meanwhile, the greenback fell against other major currency rivals as investors booked profit from its recent bull run amid growing expectations of a Federal Reserve rate increase this month.

The spot yuan rebounded in Shanghai after three straight days of declines, up 0.2 per cent to 6.893 per US dollar as of 4.30pm, compared with 6.904 late Friday.

However, the onshore rate was still at its lowest level in nearly two months.

Earlier in the day, the PBOC set the yuan’s mid-point rate at 6.879 per US dollar, stronger by 106 basis points from the previous fixing. It was the first time the central bank strengthened the yuan’s fixing in four days.

In mainland China, traders are allowed to buy or sell the yuan within 2 per cent of the daily official reference rate.

In the offshore market in Hong Kong, the yuan also strengthened for the first time in four days, up 0.07 per cent to 6.8916, compared with 6.8967 late Friday.

In other forex trading, the Japanese yen rose sharply against the US dollar, with the dollar buying ¥113.64, compared with ¥114.04 late Friday.

The gains in the Japanese currency, which is a traditional safe haven asset, came amid rising geopolitical tensions after North Korea fired four ballistic missiles into waters off Japan’s east coast, according to Japanese Prime Minister Shinzo Abe.

The US dollar pull backed against major currency peers after briefly climbing higher, as investors took profits from its recent gains after the Federal Reserve chairwoman Janet Yellen signalled a rate increase could happen as soon as later this month.

We’ve moved from 30 to 80 per cent probability for a March hike in a mere two weeks, so post-Yellen profit taking was always in the cards
Stephen Innes, Oanda Asia Pacific

The ICE US Dollar Index, a measure of the greenback’s strength against six other currencies, dropped 0.2 per cent to 101.38.

“Indeed, at our meeting later this month, the committee will evaluate whether employment and inflation are continuing to evolve in line with our expectations, in which case a further adjustment of the federal funds rate would likely be appropriate,” Yellen said Friday at a speech in Chicago.

“Forex markets reaction [to Yellen’s remarks] was somewhat guarded as the dollar came off intraday highs with the March rate hike now completely priced in,” said Stephen Innes, a senior trader at Oanda Asia Pacific, in a Monday note.

“This price action suggests that further dollar upside is limited near term,” he said.

Market expectations for a 25-basis-point March rate rise reached 80 per cent on Monday, according to the CME Group’s FedWatch tool.

“We’ve moved from 30 to 80 per cent probability for a March hike in a mere two weeks, so post-Yellen profit taking was always in the cards,” Innes said.

He added that the Fed may watch closely the employment data coming this Friday before they make any move.

The euro was at US$1.063, up 0.1 per cent from US$1.0622 late Friday. Sterling retreated to US$1.2267 from US$1.2291 in the prior session.