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Asian session – Some calm returns after PBOC sets yuan higher, Chinese stocks rise

Some semblance of calm returned to the markets after the People’s Bank of China set the value of the yuan higher and the Chinese stock market closed up by around 2%. There was nervousness on Thursday after China unveiled a huge drawdown of their foreign exchange reserves during December. The country’s reserves dropped by 107 billion dollars because of intervention to support the currency.

Friday’s positive developments helped risk assets to recover as some of the losses of the previous day were reversed. The foreign exchange market took immediate notice as the yen pulled back from its previous highs and the euro also gave up some of its previous day’s gains when it was bought as a safe haven. Specifically, the dollar climbed back above 118 yen at 118.25, while the euro fell back below 1.09 US dollars at 1.0876. Trading remained volatile however and many market participants were still awaiting further turbulence. Some investors and traders complained that there was great uncertainty in what the Chinese authorities were trying to achieve and that their future actions were difficult to predict.

The Australian dollar also managed to rise above 70 US cents after dipping below the key psychological level the previous day. Australian retail sales came in at 0.4% month-on-month during November, which met expectations.

Oil also managed to gain and move towards the $34 a barrel level, while gold was struggling to hold on to the $1100 an ounce level.

Looking ahead to the remainder of the day, the highlight will be the release of the US employment report for December. Around 200 thousand net new jobs are expected to have been created during the month, while the unemployment rate is expected to stay at 5%. UK trade balance and Canadian employment statistics will also be released.

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