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FOREX-China allows yuan to gain; aussie and kiwi rise

   * China allows yuan to rise 0.4% to post-devaluation high
 * Euro, Aussie hit 1-mth highs as dollar falls broadly  
 * Euro recovery fragile, investors look to sell rallies
 (Recasts, updates prices, adds quotes)
 NEW YORK, June 21 (Reuters) - The Australian and New
Zealand dollars rose to their highest levels in about a month
on Monday after China let the yuan rise to a five-year high,
raising optimism about global economic recovery.
China's vow to allow a flexible yuan is expected to boost
its buying power abroad. Given China's huge demand for raw
materials, the move was seen spurring a rise in demand for
commodities and gave a boost to commodity-linked currencies
such as the Australian dollar.
 Spot yuan rose to its highest level since its revaluation
five years ago, bolstering hopes the flexibility pledge from
China over the weekend would begin to reduce global imbalances
and ease tensions in the Group of 20 leading economies ahead of
a meeting next week. [ID:nBJD003795]
 The single European currency initially extended last week's
recovery against the dollar, at one point rising to a one-month
high, though gains faded as the New York session got underway.
 The dollar slipped versus a basket of currencies .DXY to
a one-month low largely because of the euro's rise.
 "Until we know more from China, how much (they will allow
the yuan to appreciate) and in what time frame, we probably
won't be seeing much reaction in the major crosses," said Dan
Cook, senior market analyst at IG Markets in Chicago. This is
definitely ahead of the G20 to get them off the hook."
 Midway through the New York session, the higher-yielding
Australian dollar AUD= gained 1 percent to $0.8807, off an
earlier one-month peak. The New Zealand dollar NZD= rose 0.8
percent to $0.7117, after an earlier five-week high.
 A higher yuan would help temper inflation in China by
pushing down import prices, which in turn could mean Beijing
would have less need to tighten monetary policy aggressively.
 Markets have been worried China could over-tighten and slow
its economy too far which had raised concerns about Beijing's
demand for natural resources, which would impact currencies
which are part of the commodity bloc.
 But some analysts were cautioning how long the latest news
from China will impact markets.
 "China has an incentive to frontload moves before the G20
meeting and the U.S. currency report, so we could see a
continuation of these moves through most of this week and
possibly into next," said Steven Englander, Citigroup's global
head of currency strategy. "But the incentives for China to
make currency moves after the currency report is released
diminishes."
 Wells Fargo is forecasting a 4-1/2 percent gain in the yuan
over the next year, compared to the 2-1/2 percent rise
currently priced into the non-deliverable forward market. 
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Latest CFTC positioning data showed a sharp reduction in euro
shorts: r.reuters.com/kus26k More details              
                                           [ID:nN18165512]
Main yuan coverage                            [ID:nCHINATAKE]
Winners and losers from a firmer yuan         [ID:nTOE65K02D]
Reuters insider: link.reuters.com/nyq23m
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
 The euro swung between gains and losses through the global
session. It was last down 0.1 percent at $1.2374 EUR= after
earlier having rallied to its highest level since May 24 on
trading platform EBS EUR=EBS.
 European Central Bank governing council member Christian
Noyer said on Monday some banks were facing funding problems,
as banks continue to deposit cash at the ECB as a result of
current market uncertainty. [ID:nLDE65K0LH].
 Traders said option barriers at $1.2500 were reportedly
being protected by a major Asian sovereign account, which had
prevented further gains overnight.
 The euro rose against the low-yielding yen, gaining 0.4
percent to 112.82 yen EURJPY=R. The dollar was up 0.5 percent
versus the yen JPY= at 91.16 yen.
 The euro closed on Friday with its best weekly gain since
May 2009 after a successful Spanish bond auction eased concerns
over the health of Spain's public finances.
 The euro's recovery, however, is still uncertain.
 "The euro main focus is still the sovereign debt," said IG
Markets' Cook. "There are a lot of questions about the euro in
general and as long as it remains quiet, it will remain at
these levels."
 (Reporting by Nick Olivari; Editing by Andrew Hay)


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