MW; Dollar gains on euro, slips vs. yen as yuan moves factored in
By Lisa Twaronite , MarketWatch
TOKYO (MarketWatch) -- The U.S. dollar gained on the euro and Australian dollar in early Asian trading Tuesday, taking back some of the ground lost in the previous session following China's weekend announcement that it will ease its de-facto currency peg to the greenback.
"The realization that China will only move very gradually on the CNY [Chinese yuan] brought a dose of reality back to markets after the initial euphoria," said Mitul Kotecha, head of global foreign-exchange strategy at Credit Agricole, in a note to clients.
The dollar index (DXY 85.99, +0.05, +0.06%) which tracks the U.S. unit against a trade-weighted basket of six major counterparts, was at 86.061, slightly up from 86.023 in late North American trading on Monday.
China lowered its U.S. dollar central parity rate to 6.7980 yuan on Tuesday from 6.8275 yuan Monday. But despite the lower parity rate, the dollar pared some of its earlier losses to rise Tuesday morning to 6.8090 yuan, up from 6.7906 yuan.
The yuan had risen by 0.4% against the U.S. dollar on Monday, just shy of the daily 0.5% limit set by the People's Bank of China for it currency to fluctuate on either side of the officially set parity rate.
"Such rate of appreciation is highly unlikely to be sustained and the central bank will seek to confer some volatility to the yuan rate going forward so as not to make 'flexibility' just a one-way bet," Uwe Parpart, chief Asia strategist at Cantor Fitzgerald, said in emailed comments.
Parpart said he expects the yuan to end the year 2010 at around 6.60 against the dollar.
"Should the EUR [euro] continue its decline against the USD [U.S. dollar] after some temporary respite, then the euro zone may reap the benefit of a 15%-20% yuan gain vs. the EUR and be the big winner in the game," he added.
The PBOC permits a 3% move by other currencies against the yuan's official parity rate. On Tuesday, the China Foreign Exchange Trade System set the euro parity for the day at 8.3816 yuan from 8.4825 yuan and the British pound parity at 10.0372 yuan from 10.1382 yuan.
The euro (CUR_EURUSD ) fell to $1.2292 from $1.2318 late Monday.
Against the Japanese yen, the dollar (CUR_USDYEN ) slipped to ¥90.97, from ¥91.97 late Monday.
The Australian dollar (CUR_AUDUSD ) bought 87.75 U.S. cents, slightly down from 87.81 U.S. cents late Monday.
On Monday, the U.S. dollar turned higher against the euro and yen, as investors pondered the implications of China's currency policy announcement. See Monday's Currencies report.
