Japanese equities recorded the biggest daily loss since 8th November as yen strengthened against the greenback yesterday.

The US Dollar Index plunged to 102.1 area from its recent high as US treasuries rose after strong demand for 7-year auction.  The 7-year Treasury notes were awarded at 2.284%, the highest yield since April 2014, due to  month-end buying and portfolio rebalancing which directed flows out of stocks into bonds.

Weaker US dollar sent commodities names higher. Gold and silver rebounded for a fourth day from their recent lows. Crude oil prices also jumped higher last night, in spite of  DoE’s crude oil inventory increasing by 0.6 mil barrels from the previous week. Today, energy and mining sectors are likely to be supported by the commodities rebound.

Yesterday, China’s authorities diluted the weight of the US dollar in its trade-weighted foreign exchange basked by adding another 11 currencies into it. This shows that the government is trying to adopt a more flexible approach to stabilize the yuan against the backdrop of the strengthening US dollar. The weighting of the dollar in the basket will fall to 22.4 percent from 26.4 percent.

Currencies been added include the South African rand, Korean won and United Arab Emirates’ dirham, Poland’s zloty and Turkey’s lira – a more diversified portfolio. This will help China to better manage yuan’s stability. USD/CNH closed lower yesterday at around 6.964 area.

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