FOREX-Dollar on backfoot as yuan fix boosts risk currencies

* Dollar dips as risk appetite grows
* Yuan official rate fixed at highest level in 30 months
* Aussie dollar gains 0.7%, biggest mover in G10 FX
* Graphic: World FX rates in 2020 https://tmsnrt.rs/2RBWI5E

By Ritvik Carvalho
LONDON, Jan 5 (Reuters) - The dollar fell against a basket
of major currencies on Tuesday after China lifted its official
yuan exchange rate by its highest margin since it abandoned a
dollar peg in 2005, helping support demand for other currencies.
China's central bank set the official yuan midpoint
CNY=PBOC at 6.4760 per dollar before the market opened, up 1%
from the previous fix, the biggest change higher since
2005. In the offshore market, the yuan strengthened as far as
6.4419 CNH=EBS for the first time since June 2018. It started
the week at 6.4944.
"Following through yesterday's move and in keeping with the
weaker dollar theme, dollar-yuan continues to slide, blasting
through 6.44 and pushing toward 6.42," said Eleanor Creagh,
Australian market strategist at Saxo Bank.
"The stronger yuan fix is doing little to push back on
bullish yuan traders, along with news the New York Stock
Exchange is scrapping delisting plans for Chinese Telcos."
The New York Stock Exchange said it no longer intends to
de-list three Chinese telecom companies. The surprising reversal
of an announcement made only last week deepened confusion over a
U.S. crackdown on companies said to be linked to China's
military. While investor caution about the yuan's rally prompted some
later selling of the Chinese currency on Tuesday, the central
bank's action nonetheless lifted risk sentiment in currency
markets.
Among G10 currencies, the Australian dollar led gains as the
move by the People's Bank of China encouraged broad dollar
selling.
The dollar index weakened 0.3% to 89.63. It dropped as low
as 89.415 on Monday for the first time since April 2018, but
ended the day with a 0.1% gain after U.S. stocks slid.
Earlier, the dollar had found support as concern about
surging COVID-19 cases and uncertainty about U.S. runoff
elections in Georgia spurred a retreat in U.S. stocks from
record highs to start the year and kindled demand for safer
assets.
Still, strategists appear convinced of protracted weakness
for the dollar.
"While rising COVID cases remain the key near-term risk, as
has been the case in the latter part of 2020, the market
continues to focus on the prospects of the vaccine and the
eventual global economic recovery," ING Bank said in a note to
clients.
"While a possible Democratic victory (in Georgia) could
raise concerns about more regulation, at least over the coming
months this might be outweighed by expectations of larger fiscal
stimulus and thus keep risk assets supported and the dollar weak
over the coming months."
The Aussie dollar, a barometer of risk appetite that also
tends to follow the yuan, jumped as much as 0.7% to 77.24 U.S.
cents AUD= during trade in London, approaching the
two-and-a-half-year high of 77.43 touched on the final day of
2020.
The dollar fell 0.3% to 102.81 yen JPY=EBS . It dropped as
low as 102.81 on Monday for the first time since March.
The euro rose 0.3% to $1.22830 EUR=EBS after reaching
$1.231 on Monday, its highest since April 2018.
The British pound gained 0.3% to $1.3595 GBP= .
Sterling has been buffeted by a surge in infections of a
fast-spreading new coronavirus strain in the UK, with Prime
Minister Boris Johnson ordering another nationwide lockdown.
It slid 0.73% on Monday, the most since Dec. 10, after
earlier rising to $1.3703, a level not seen since May 2018.
Bitcoin traded at $31,670 BTC=BTSP following a
roller-coaster ride that took it to a record high of $34,800 on
Sunday, followed by a tumble to as low as $27,734 the following
session.



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