Australian dollar hit by China’s shock devaluation of the yuan

THE Australian dollar has lost more than one US cent after China made the surprise decision to devalue its currency by almost two per cent.

A teller counts yuan banknotes in a bank in Lianyungang, east China's Jiangsu province on August 11, 2015. China's central bank on August 11 devalued its yuan currency by nearly two percent against the US dollar, as authorities seek to push market reforms and bolster the world's second-largest economy. CHINA OUT AFP PHOTO

THE Australian dollar has lost more than one US cent after China made the surprise decision to devalue its currency by almost two per cent.

At 0700 AEST on Wednesday, the Australian dollar was trading at 73.03 US cents, down from 73.16 cents on Tuesday.

Early on Wednesday morning it fell as low as 72.84 US cents, from 74.24 US cents just before the Chinese central bank announced its largest reduction in the yuan’s trading range.

NAB currency strategist Emma Lawson said the PBoC’s decision had pushed down the value of most major currencies against the US dollar and had also weakened share markets.

“Markets are a little wary of the implications of China’s devaluation yesterday. Combine that with uncertainty around the US Federal Reserve’s upcoming interest rate hike,” she said.

“Asian foreign exchange markets were weaker and dragged the Australian dollar with it, but much of that move was seen in the Asian session.” Ms Lawson said markets would closely watch to see if the PBoC continued to move the yuan lower in its daily trading range decisions.

“If the new fix methodology is adhered to, as noted, then we should see further weakness today,” she said.

“All eyes (will be) on today’s setting of the midpoint for the allowable trading band.”

CURRENCY SNAPSHOT AT 0700 AEST ON WEDNESDAY

One Australian dollar buys:

* 73.03 US cents, from 73.16 cents on Tuesday

* 91.39 Japanese yen, from 91.40 yen

* 66.14 euro cents, from 66.72 euro cents

* 111.74 New Zealand cents, from 111.79 NZ cents

* 46.89 British pence, from 47.03 pence

(*Currency closes taken at 1700 AEST previous local session)

Source: IRESS