China’s surprise decision to devalue the yuan sparked a widespread selloff in global currencies Tuesday.Roiled the most were monetary units of economies whose exporters either rely on Chinese companies to buy their products or compete with Chinese exporters for customers.
The currencies of Asia economies — like the South Korean won and Japanese yen — sold off in sympathy with the yuan. Exporters in Japan and South Korea compete with exporters in China.
Meanwhile, the currencies of large commodity exporters like Australia and New Zealand, which depend on China to buy their exports, sold off because a weaker yuan means Chinese companies might not be willing to pay as much for raw materials like iron ore.
“If your biggest trading partner has their purchasing power diminish, you figure their ability to buy your exports at the going has also diminished,” said Steve Englander, global head of G-10 FX strategy at Citigroup.
The Australian dollar AUDUSD, -0.7119% was down 1.7% in recent trade to 72.94 cents, its weakest level in about a week and a half. The New Zealand dollar NZDUSD, -0.4591% fell 1.3% to 65.32 cents, a chunk of its gains from last week. The aussie traded at 74.18 cents late Monday in New York, while the New Zealand dollar traded at 66.17 cents.
Showing more resilience than other rivals, the Japanese yen weakened about 0.3% against the dollar to ¥125. While Japan USDJPY, +0.05% does compete with China for dominance in the export market, currency traders also view it as a haven, Englander said.
By comparison, the South Korean won USDKRW, +1.02% weakened nearly 2% to 1,181.01 won to the dollar, down from 1,159.35 won to the dollar late Monday in New York.
The euro EURUSD, +0.1449% strengthened against the dollar as Greek officials struck a deal with their international creditors for a third bailout. The deal must still be approved by the parliaments of the eurozone countries. The shared currency recently traded at $1.1041, up 0.2% from $1.1021 late Monday in New York.
Meanwhile, the ICE U.S. Dollar Index DXY, -0.08% a measure of the dollar’s strength against a basket of six currencies, rose 0.2% to 97.3130.
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