Australian dollar subdued as China fears ease

The Aussie dollar was relatively subdued in trading today with markets still closely watching China’s daily process of fixing its currency.

The Australian dollar was relatively subdued in trading today with markets still closely watching China’s daily process of fixing its currency level and the potential for volatility around it.

Major currencies also traded quietly amid growing confidence that yuan volatility will subside as markets adjust to the new currency regime outlined by Beijing earlier in the week.

People’s Bank of China officials said yesterday the yuan would stabilise and eventually resume its climb.

Earlier today, the central bank guided the yuan fix rate slightly higher after pushing down the currency for three straight days.

At 4:45pm, the Australian dollar was trading at US73.80c, up from US73.55c yesterday.

“Traders are still coming to grips with how to interpret the new yuan fixing mechanism and what it really means as far as short and long-term impact,” said Stephen Innes, senior trader at currency firm OANDA.

“Although the volatility has abated over the past 48 hours, markets continue to exhibit a high degree of uncertainty,” he added.

Earlier, Reserve Bank of Australia assistant gGovernor Chris Kent said a lack of wages pressure in Australia might help to explain why unemployment hasn’t risen as far as expected this year.

Wage growth across Australia’s economy is now comparable to the pace seen when the country was last in recession, a quarter of a century ago, he said in a speech in Brisbane.

“The behaviour of wages during the current episode has been comparable to the experience around the 1990s recession,” he said.

“While we would normally expect wage growth to decline after a period of subdued labour demand, the decline over recent years has been larger than suggested by historical experience,” he added.