The U.S. dollar and commodity-based currencies including the Australian and Canadian dollars rose against the yen and euro on Wednesday as the Chinese yuan steadied and oil prices jumped, increasing the market's appetite for assets that provide higher yield.
Better-than-expected Chinese trade data eased some of the pessimism over the world's second-largest economy, injecting a sense of calm into financial markets following heavy intervention by Beijing to stem recent declines in the Chinese currency.
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Some analysts estimate that the Chinese central bank may have sold $10 billion-$20 billion in the last week to prop up the yuan.
U.S. crude, meanwhile, jumped more than 3 percent, a day after dipping below the $30 barrier for the first time in 12 years. This gave relief to commodity-linked currencies like the Norwegian crown.
"The broader market tone is showing signs of tentative risk appetite, bolstered by continued stability in China's exchange rate and reinforced by the release of better-than-feared trade figures out of China," said Eric Theoret, currency strategist, at Scotiabank in Toronto.
The People's Bank of China (PBOC) fixed the daily mid-point for the yuan at 6.5630 to the dollar, little changed from the steady fixes of the previous two days, alleviating some of the fears that have weighed on investors' minds about a sharp and quick depreciation in the currency.
The fixing came as the central bank put a squeeze on offshore sellers of the currency by making it prohibitively expensive to speculate against the yuan.
In mid-morning trading, the dollar rose 0.4 percent against the yen to 118.12, while the euro was down 0.1 percent at $1.0848
"It is hardly surprising that safe-haven currencies like the yen are under pressure. However, it is questionable how long this risk appetite will last," said Lutz Karpowitz, currency strategist at Commerzbank.
Both the safe-haven yen and the low-yielding euro tend to gain in times of market stress because these currencies are often used to fund investment in risky assets, and consequently rise back up when there is a retreat from those assets.
The Australian dollar, often used as proxy for China because of Australia's reliance on Chinese demand for raw materials, rose 0.4 percent to US$0.7019, edging back from Monday's four-month low of US$0.6927.
While Beijing appears to have stabilized the yuan for now, analysts say its long-term policy outlook remains unclear and volatility in currency markets is likely to stay.
(Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by Anirban Nag in London; Editing by Meredith Mazzilli)