Renminbi Falls, Yen Flat, Aussie Gains

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

Renminbi

In China, we saw the Renminbi fall to 7.269 against USD last week. There was a reported strategic intervention by the People's Bank of China, which introduced temporary bond repurchase agreements to better control interest rates and manage cash conditions.

This effort is expected to provide the central bank with more flexibility in handling interest rates amid strong demand for bonds.

Additionally, the PBOC set the midpoint rate at 7.1286 per dollar, stronger than market expectations, signaling a measured approach to Renminbi depreciation aimed at mitigating the impacts of a strong dollar while avoiding significant capital outflows.

Meanwhile, markets are bracing for a busy week with the release of key economic indicators, including inflation data, trade figures, and the outstanding loan growth rate, all of which are expected to provide further insights into China's economic trajectory.

Japanese Yen

The Japanese Yen ended the week trading flat at 160.9 per dollar, after trading as weak as 161.8 earlier in the week. Soft US economic data reinforced expectations that the Federal Reserve could start cutting interest rates as early as September, tempering pressure on the Yen.

Fears of another government intervention also supported the currency as Japanese authorities spent nearly 10 trillion yen in late April to late May to prop up the Yen after breaching the 160 per dollar level.

The lack of urgency from the Bank of Japan to normalise monetary policy also weighed on the Yen, although there is growing speculation that the BoJ could hike rates at its next policy meeting in late July.

Australian Dollar

The Australian dollar gained a touch under 1% against the US Dollar to trade at 0.674 on Friday, making it the second best performing major world currency last week, behind GBP.

The Aussie hit fresh six-month highs amid expectations that the Reserve Bank of Australia could fall behind in the global rate-cutting cycle or even raise interest rates again amid strong inflation data for May.

Markets are currently priced for a just under 50% chance that the RBA will hike rates at its next meeting in August, while pricing out any chance for a rate cut this year. Data held up well last week with an increase in both imports and exports, with building permits and retail sales both beating expectations.