Renminbi Gains, Yen Weakens, AUD Hits 4-Week High

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

Renminbi

We saw the Renminbi strengthen to 7.14 USD last week despite China's economic outlook presenting a mixed picture in July, with new home prices dropping the most since June 2015.

Industrial output growth slowed to its lowest rate since March and the unemployment rate rose after three months of stability.

On the positive side, retail sales growth accelerated, marking the 18th consecutive month of expansion. Attention now turns to PboC’s upcoming decisions on key lending rates, particularly the 1-year loan prime rate and the 5-year rate, set to be announced on Tuesday.

Japanese Yen

The Japanese Yen weakened against the Dollar to 147.9 last week as markets stabilised further. With losses of around 1%, the Yen had its biggest weekly drop in almost two months.

The currency surged to as strong as 141.67 against USD on August 5th as the Bank of Japan’s surprise rate hike, combined with the flare up in US recession worries, sparked an aggressive unwinding of Yen-financed carry trades.

Some calm was restored after influential BoJ deputy governor Shinichi Uchida said the central bank would not hike rates when markets are volatile, and there are signs traders have been rebuilding Yen-short positions.

Additional volatility is possible in the coming weeks as the further unwinding of carry trades cannot be ruled out.

Australian Dollar

The Australian Dollar gained last week by 1.6% against the US Dollar to trade at 0.668 on Friday, hitting a four-week high as hawkish signals from the Reserve Bank of Australia coincided with an increasingly dovish outlook on Federal Reserve monetary policy.

Last week, RBA Governor Michelle Bullock said that despite signs of easing inflation, it was still premature to consider cutting interest rates. She warned that inflation remains too high and is not expected to return to the central bank’s 2-3% target until the end of next year.

Those comments came as the RBA held rates steady at 4.35% for the sixth straight meeting in August amid a resilient economy and persistent inflationary risks.