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BUZZ-COMMENT-China set to guide currency market direction

Credit: REUTERS/DADO RUVIC

China's economic recovery is boosting the yuan and this rise has been tolerated by the authorities. That's the key for FX traders, who should expect a rising yuan to influence wider currency movement in the future [nL1N2HA057]. It should underpin risk appetite, support commodity currencies and emerging markets, especially higher yield EM currencies.

Oct 19 (Reuters) - China's economic recovery is boosting the yuan and this rise has been tolerated by the authorities. That's the key for FX traders, who should expect a rising yuan to influence wider currency movement in the future . It should underpin risk appetite, support commodity currencies and emerging markets, especially higher yield EM currencies.

The yuan also has an impact for major currencies. Both the euro and yen are large components within the yuan's trading basket and will be weighed down by a sustained yuan rise.

Euro, yen and Swiss franc are also pivot currencies. Their direction will change with attitudes to risk taking, so they are underpinned as safe assets in worrying times or undercut as funding currencies during positive periods.

The yuan's rise should depress these currencies, and with traders widely betting on them rising, the CNH could have a big impact. This is particularly important for EUR/USD, where traders are massively long EUR .

A further yuan rise should lead EUR, JPY or CHF lower versus higher-yield EM currencies such as ZAR, MXN, INR or IDR .

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(Jeremy Boulton is a Reuters market analyst. The views expressed are his own)

((jeremy.boulton@thomsonreuters.com))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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