Australian dollar hit as China rejects coal imports

LONDON (Reuters) – The Australian dollar fell on Tuesday after reports that China has halted coal imports from the country as their relations deteriorate, while the U.S. dollar recovered from a three-week low plumbed the day before.

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The dollar index against a basket of currencies edged up 0.1% to 93.18 =USD after Chinese authorities appeared to be trying to put a brake on recent rises in the yuan, one of the basket’s components. It remained close to the three-week low of 93 it fell to on Monday.

Against the euro, the dollar rose 0.2% at 1.1788 EUR=EBS. News that a Johnson & Johnson Covid-19 study was paused due to an unexplained illness in a participant contributed to a modest dollar rise.

The fact that investor sentiment in Germany fell by more than expected in October failed to leave a mark on the euro.

Investors will be looking for the U.S. consumer price index at 1230 GMT. Economists polled by Reuters expect the CPI rose 0.2% month-on-month in September, compared with 0.4% the month before.

The U.S. currency’s safe-haven appeal was limited by growing expectations former U.S. Vice President Joe Biden’s win in the Nov. 3 presidential election would bring large stimulus for the pandemic-hit economy, bolstering the stock market and investor risk appetite.

The Australian dollar was last down by 0.3% at 0.7194 against the U.S. dollar AUD=D3 as coal, the country’s key export commodity, came under threat. It also fell 0.3% against the New Zealand dollar AUDNZD=.

State-owned utilities and steel mills in China received notice from China’s customs to stop importing Australian thermal and coking coal. Analysts, however, said both the country and its currency should weather the storm.

Kerry Craig, global market strategist at J. P. Morgan Asset Management, noted that it is easier to find another supplier for thermal coal than it is for coking coal, making it difficult to substitute Australian coking coal.

“There is still a clear symbiotic relationship between the two nations in as much as Australia is still reliant on exports to China and China is reliant on the higher quality coal and iron ore from Australia while it rebuilds its economy,” Craig said.

Kit Juckes, macro strategist at Societe Generale, said the Aussie dollar should also remain supported by Australia’s strong fiscal stimulus.

Deutsche Bank analysts found that Israel, Singapore and Australia would be the biggest beneficiaries from the announcement of a vaccine.

The Chinese yuan rose 0.1% at 6.7328 per dollar CNH=EBS in the offshore market. The central bank set a weaker-than-forecast midpoint, offseting any boost from strong Chinese trade data.

China’s central bank also announced over the weekend the removal of reserve requirements for some foreign exchange forwards, cementing speculation Beijing wants to curb the yuan’s strength.

Elsewhere, the British pound fell 0.2% against the U.S. dollar GBP=D3 at $1.3037, but was neutral against the euro at 90.45 pence EURGBP=D3.

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