Renminbi and Yen Surge, Aussie Dollar Slumps in FX Shifts

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

Renminbi

In China, we saw the Renminbi strengthen to 7.25 against USD last week in a highly volatile week of trading. The offshore yuan had earlier strengthened to 7.21 on Thursday.

The Renminbi’s earlier strength was attributed to the state bank intervention, which capitalised on a weaker US dollar by aggressively selling the greenback and buying Yuan in both onshore and offshore markets to support its appreciation.

Meanwhile, the People’s Bank of China unexpectedly cut its one year medium-term lending facility rate by 20 basis points to 2.3% on Thursday, the largest reduction since April 2020.

This decision followed earlier reductions in several benchmark lending rates on Monday, reflecting the PBOC's efforts to support the economy amid ongoing challenges.

Japanese Yen

The Japanese Yen ended the week trading at 153.5 against the US Dollar, a second consecutive week of appreciation, pulling it away from lows of 161 to the dollar touched just a few weeks ago.

The Yen had its strongest week in nearly three months on Friday as traders unwound long-held bets against the currency ahead of crucial US inflation data that could help cement expectations for where Federal Reserve rates might head.

Markets are seeing the Yen as an alternative safe-haven currency once again as bets against the dollar ramp up. The BoJ meets this week with markets divided on the chance of a rate rise, although a hold in rates is slightly favoured.

Australian Dollar

The Australian Dollar was under pressure again last week and weakened 2.1% against the US Dollar to trade at 0.65 on Friday.

This was the Aussie’s worst week since November last year amid a global selloff in risk assets, forced unwinding of carry trades against the Yen and a weak economic outlook in top trading partner China.

Meanwhile, investors look forward to second quarter inflation data in Australia this week for clues on the domestic monetary policy path. Some market participants are still betting that the Reserve Bank of Australia could hike rates again in August, although economists are warning against further tightening amid heightened recessionary risks.

Data earlier this week showed that private sector growth in Australia eased in July as manufacturing activity remained in contractionary territory, while services sector growth slowed.