Loonie Gains With Aussie as China Moves to Support Stock Market

  • Risk sentiment is main driver for currencies: JPMorgan
  • Global FX Volatility Index holds at highest since December

The Canadian and Australian dollars rose after the People’s Bank of China injected 130 billion yuan ($20 billion) into the nation’s money markets and as state-controlled funds were said to have stepped in to support stocks after a $590 billion selloff.

The Aussie rebounded from the biggest decline among developed-market currencies amid investor confidence that central banks are prepared to take action to support global growth. Chinese stocks stabilized after a 7 percent drop in the CSI 300 Index Monday halted trading. A measure of currency market volatility jumped to the highest in a month.

“For now, risk aversion seems to have calmed down,” said Junya Tanase, chief foreign-exchange strategist at JPMorgan Chase & Co. in Tokyo. “Currency markets are moving based on shifts in risk sentiment -- that’s the main driver for sure. There are a lot of potential catalysts, but one is China’s stock markets.”

The Canadian dollar strengthened 0.3 percent to C$1.3907 to its U.S. peer at 7:56 a.m. London time. Australia’s currency rose 0.2 percent to 72.07 U.S. cents, having tumbled 1.3 percent from Dec. 31 through Monday’s close in New York.

Stock Gains

The yen was little changed at 119.46 per dollar. It appreciated 0.2 percent to 129.10 per euro. The 19-member common currency declined 0.2 percent to $1.0807.

China’s CSI 300 Index rose 0.3 percent Tuesday after swinging between gains and losses.

The nation’s central bank conducted the biggest reverse-repurchase operations since September, according to traders at primary dealers required to bid at the auctions. State-controlled funds bought local equities and the securities regulator signaled a selling ban on major investors will remain beyond this week’s expiration date, according to people familiar with the matter who asked not to be identified because the buying wasn’t publicly disclosed.

The JPMorgan Global FX Volatility Index held at 10.03 percent, the highest since Dec. 2.

“When a year starts like this, it’s often the case that you get volatility,” said Etsuko Yamashita, chief economist at Sumitomo Mitsui Banking Corp. in New York. “To think it will be over any time soon is probably being too optimistic.”

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