The U.S. dollar lurched on Tuesday as China allowed its yuan to fall to levels last seen in 2012, a move that could provide a competitive boost to exports from the world’s second largest economy.
Asian stocks mostly held firm as investors weighed the implications of the surprise move, which seemed to end months of officially sanctioned yuan strength.
China’s central bank set the mid-point for its currency at 6.298 per dollar, down from Monday’s fix of 6.1162, and said it was aiming for a depreciation of 2 percent.
Markets reacted by selling the Australian dollar, often used as a liquid proxy for the Chinese currency. The Aussie slid to $0.7347, from $0.7430 ahead of the news.
Other currencies in the region also lost ground to the U.S. dollar as investors reasoned they would have to ease to stay competitive with China.
Against a basket of currencies, the U.S. dollar gained 0.2 per cent to 97.339. The euro eased a touch to $1.0990, while the dollar firmed to 124.85 yen.
Chinese share markets were holding steady following hefty gains on Monday.
Elsewhere in the region, MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.45 per cent. Japan’s Nikkei added 0.6 per cent.
Sentiment had got a lift from Wall Street, where the Dow had ended Monday with gains of 1.39 per cent, while the S&P 500 climbed 1.28 per cent and the Nasdaq 1.16 per cent.
Shares in Google jumped over 5 per cent, adding $25 billion to its market value, after announcing a new holding company called Alphabet which will separate the core web advertising business from newer ventures.
In commodity markets, oil eased back after a sharp rally on Monday. Brent crude was quoted 29 cents lower at $50.12 a barrel, while U.S. crude eased 31 cents to $44.65. – Reuters-2015