Dollar hit as China devalues currency
THE Australian dollar has tumbled after China’s central bank devalued its currency to a historic low.
The Aussie was trading at US73.28 at 8pm yesterday, down from US73.90 the day before.
During the morning it peaked at US74.41 before the surprise move from the People’s Bank of China.
Commonwealth Bank of Australia currency strategist Joseph Capurso said the Aussie was almost 2 per cent weaker against the greenback after the announcement.
In an attempt to prop up China’s weakening export sector, the PBoC devalued the yuan by 1.85 per cent.
A cheaper yuan will make Chinese exports cheaper and potentially boost overseas sales, one of the main drivers of growth.
The surprise move marked the biggest drop since China reformed its currency system in 2005.
The move drove a large bid for the US dollar against a range of Asian currencies.
“The Aussie dollar trades as a proxy for Asian currencies, because it’s a very liquid currency,” Mr Capurso said.
“So that big move in the Chinese (yuan) caused a massive fall in the Aussie.”
The National Australia Bank business confidence index in July dropped below its long-run average to four points, from eight points in June. Conditions fell as concerns about Chinese economic growth soured the mood in the mining sector.
The Australian sharemarket also dipped yesterday, dragged down by weakerthan-expected earnings from Cochlear.
Falls among the big four banks also pushed the market lower.
Commonwealth Bank was the best-performing lender, shedding just 2 to $82.12, ahead of its full-year results today.
ANZ Bank lost 53 to $30.07, Westpac fell 63 to $32.05 and National Australia Bank was 86 weaker at $32.46.
The ASX200 index was down 36 points, or 0.65 per cent, at 5473.2.