Australian Dollar Slides As China Devalues Yuan

 
  


By James Glynn 
 

        SYDNEY--The Australian dollar fell to its lowest levels in a week Tuesday after China's central bank sharply devalued the yuan to boost its flagging economy.
        The Australian dollar was trading at US$0.7326 at 0650 GMT, up from US$0.7399 late Monday.
        China sets a midpoint for the value of the yuan. In daily trading, the yuan is allowed to move 2% above or below that midpoint, which is called the daily fixing.
        But Chinese officials sometimes ignore the daily moves, at times setting the fixing so that the yuan is stronger against the dollar a day after the market has indicated it should be weaker.
        PBOC Officials surprised markets by allowing the yuan's fixing to be lowered 1.9% Tuesday from the previous day, leaving it at 6.2298 to the U.S. dollar, compared with 6.1162 on Monday.
        It was the biggest one day decline in the yuan since China unified official and market exchange rates in January 1994.
        The Australian dollar fell on the announcement as it tends to be traded as a proxy for the yuan, while the move also highlighted concerns about a slowdown in the world's second largest economy, and Australia's biggest trading partner.
        "A higher U.S. Dollar/Yuan is effectively a depreciation in the currency and an easing of monetary conditions. The PBOC must see this as helpful to assist with China's current cyclical economic slowing, said Peter Dragicevich, currency strategist at the Commonwealth Bank.
        The yuan devaluation also followed closely news of weaker business confidence and trading conditions in Australia.
        Business confidence and conditions retreated sharply in July from June, pouring cold water on what were growing hopes of a coming rebound in investment and hiring across the economy.
        National Australia Bank's monthly survey of business showed nearly all measures of activity, including profitability and hiring intentions, were weaker.
        NAB's business confidence index stood at 4 points in July, down from 8 points in June. The business conditions index gave a reading of 6 points, down from 10 points in June.
        NAB's chief economist, Alan Oster, said the drop may reflect heightened concern over softening growth in China, Australia's biggest trading partner.
        "An escalation in Chinese growth concerns could be putting firms on alert," he said.
        The weakening of conditions may come as a shock to Australia's central bank, which has been highlighting evidence of a recovery in business conditions in more optimistic comments to financial markets.
        -Write to James Glynn at james.glynn@wsj.com
        (END) Dow Jones Newswires

        August 11, 2015 03:19 ET (07:19 GMT)