Yen and Yuan Surge, Aussie Dollar Slips

Here’s this week’s overview of the Renminbi, Japanese Yen, and Australian Dollar:

Renminbi

In China, we saw the Renminbi strengthen to 7.15 against USD last week in another highly volatile week of trading boosted by a stronger Japanese Yen and investors rushing to unwind their emerging market carry trades.

The sudden uptick in the Yen and Yuan came after weak U.S. labour data late last week stoked worries about a US recession and expectations of deeper rate cuts by the Federal Reserve.

Japanese Yen

The Japanese Yen hit its highest levels against the dollar since January on Monday, as markets extended moves triggered last week after weak U.S. labour data stoked fears of recession.

The Yen is now trading stronger than 144 per USD, marking an 11% monthly gain against the Dollar.

A reduction in Japanese unemployment, reaccelerating inflation and a hawkish BoJ caused the stunning reversal against a weaker Dollar as safe haven flows flocked into JPY over the past week.

In a seemingly paradoxical development, the Nikkei 225 stock market index has plunged by 25% over the same period, driven by value losses in exporters exposed to risk of a US recession and correction in AI-related investments.

Australian Dollar

The Australian Dollar was under pressure again last week and weakened a further 1.9% against the US Dollar to trade at 0.64 on Friday.

The Aussie found some support on bets that the US Federal Reserve will have to cut interest rates more aggressively. Domestically, investors are braced for the Reserve bank of Australia’s latest monetary policy decision.

The RBA is widely expected to hold rates steady at 4.35% for a sixth straight meeting on Tuesday, while traders will closely monitor the bank’s forward guidance.

Last week, data showed that, in the second quarter, Australia’s core inflation rate slowed more than expected on annual and quarterly bases, to 3.9% and 0.8%, respectively.

Markets now see around a 75% chance for an RBA rate cut in November, much earlier than previous forecasts for a move in April next year.