Yuan Rises as Asian Currencies Strengthen Amid Expectations of U.S. Rate Cuts
The yuan, along with other Asian currencies, saw gains on Monday as investors anticipated that U.S. interest rate cuts might begin within a month, signaling a potential end to the dollar’s prolonged rally.
During morning trade, the yuan climbed to as high as 7.1437 per dollar and was last seen around 0.2% stronger at 7.1444.
After being stuck at the lower end of its daily trading band for months due to China’s bleak economic outlook, the yuan has recently rebounded to the middle of its range, primarily because of a weakening dollar.
Simultaneously, a significant unwinding of short positions against the Japanese yen has also weighed on the dollar.
However, a series of disappointing Chinese economic reports, including July data showing the slowest loan growth in 15 years and ongoing declines in home prices, has led analysts to believe that the yuan’s recent rally against the dollar may be nearing its end.
“The weak prospects for the Chinese economy and expectations for additional monetary policy easing will undermine investor confidence in Chinese assets, which in turn will reduce demand for the yuan,” said analysts at the Commonwealth Bank of Australia.
They added that the yuan “is unlikely to benefit much from a decline in the USD driven by an improving global economy.”
Against a basket of currencies from its trading partners, the yuan hit 98.07, its lowest level since January 15, according to Reuters calculations based on official data.
The offshore yuan was approximately 0.2% stronger at 7.1463 per dollar as of 0330 GMT.
Global markets are in a wait-and-see mode ahead of a speech by Federal Reserve Chair Jerome Powell at Jackson Hole on Friday, where he is expected to argue for interest rate cuts.
Chinese government 10-year bond yields fell by 0.6 basis points to 2.18%, while the yield on similar U.S. government benchmark debt stood at 3.9%.
The onshore yuan 7-day benchmark repo rate was at 1.74%, and in the forwards market, the three-month yuan was quoted at 7.0739, 736 pips stronger than the spot rate. Three-month CNH forwards were quoted at 7.0744 per dollar.
On Monday, the People’s Bank of China set the midpoint rate, around which the yuan is allowed to trade within a 2% band, at 7.1415 per dollar, 133 pips firmer than Reuters’ estimate.
Key Onshore vs. Offshore Levels:
- Overnight dollar/yuan swap onshore: -7.17 pips vs. offshore: -7.17
- Three-month SHIBOR: 1.8% vs. three-month CNH HIBOR: 2.2%
Levels at 03:35 GMT:
- Instrument: Spot Yuan
- Current: 7.1475
- Up/Down(%): 0.25%
- Change (%): -0.64%
- Day’s High: 7.1445
- Day’s Low: 7.1585
Offshore Yuan Spot:
- Current: 7.1471
- Up/Down(%): 0.21%
- Change (%): -0.31%
- Day’s High: 7.144
- Day’s Low: 7.1641
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