The Yuan Rises Alongside Asian Currencies as Investors Anticipate U.S. Rate Cuts
The yuan strengthened on Monday, reaching 7.1437 per dollar in morning trade as investors predict upcoming U.S. rate cuts. This surge in Asian currencies suggests a potential end to the dollar’s long-standing dominance.
After being stagnant due to China’s economic downturn, the yuan has recently rebounded, hitting the middle of its daily trading band. This revival is mainly attributed to the dollar’s decline.
Simultaneously, a significant decrease in short positions against the Japanese yen has further pressured the dollar.
Despite these positive movements, disappointing Chinese economic data has analysts questioning the sustainability of the yuan’s rally against the dollar. Experts at the Commonwealth Bank of Australia believe that weak economic prospects and anticipated monetary policy adjustments in China could dampen investor confidence in Chinese assets, reducing demand for the yuan.
Looking at a basket of currencies from trading partners, the yuan hit 98.07, the lowest level since January 15. It was last about 0.2% stronger at 7.1463 per dollar.
Global markets are awaiting Federal Reserve Chair Jerome Powell’s speech on Friday at Jackson Hole, where he is likely to advocate for interest rate cuts.
Chinese government yields declined by 0.6 basis points to 2.18%, while similar U.S. government benchmark debt offered a yield of 3.9%.
In the repo and forwards markets, the yuan onshore 7-day benchmark repo rate stood at 1.74%. Three-month yuan forwards were quoted at 7.0739, 736 pips above the spot rate. Three-month CNH forwards were quoted at 7.0744 per dollar.
The People’s Bank of China set the midpoint rate at 7.1415 per dollar on Monday, indicating a slight strengthening compared to 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. 3-month CNH HIBOR 2.2%
LEVELS AT 03:35 GMT
INSTRUMENT CURRENT UP/DOWN(-) % CHANGE DAY’S HIGH DAY’S VS. PREVIOUS YR-TO-DATE LOW CLOSE %
Spot yuan 7.1475 0.25 -0.64 7.1445 7.1585
Offshore 7.1471 0.21 -0.31 7.144 7.1641
