Renminbi Weakens, Yen Surges, and Aussie Dollar Gains

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

Renminbi

The Renminbi slipped to around 7.10 against the dollar, pressured by weaker than expected economic data from China. Growth in industrial production slowed to a five month low of 4.5% year over year in August 2024, missing the 4.8% forecast and down from 5.1% in July.

Similarly, retail sales growth moderated to 2.1% annualised, falling short of expectations of 2.5% and slowing from 2.7% in the previous month.

Additionally, the unemployment rate edged up to a six month high of 5.3% in August, compared to market forecasts and July’s reading of 5.2%.

This rising joblessness, coupled with weakening industrial and consumer activity and indications of significant financial stresses on local and regional governments, heightened concerns over China’s economic outlook, further signaling the need for additional stimulus measures.

Attention now turns to the PBoC's upcoming decisions on key lending rates, particularly the 1-year loan prime rate and the 5-year rate, which are set to be announced on Friday.

Japanese Yen

The Japanese Yen strengthened to 140.5 against the dollar last week, its strongest level in 13 months. This move comes amid a widening divergence on monetary policy trajectory between Japan and the US.

The Bank of Japan is widely expected to hold rates steady this week while leaving the door open for another rate increase, possibly as soon as October.

Last week, BoJ board member Naoki Tamura said that the central bank must push up short term rates to at least around 1% to stably achieve the 2% inflation target.

BoJ board member Junko Nakagawa also said that the central bank will continue raising interest rates if the economy and inflation move in line with its forecasts.

On the other hand, the US Federal Reserve is expected to cut rates for the first time in four years this week, with current market pricing leaning toward a larger 50 basis point reduction.

Australian Dollar

The Australian Dollar strengthened 0.6% last week against the US Dollar to trade at 0.67 on Friday. The Aussie was lifted by dovish Fed bets and stronger commodity prices, with gold scaling new record highs.

On the domestic monetary policy front, Reserve Bank of Australia Governor Michele Bullock said recently that it is too soon to consider rate cuts as inflation remains too high.

RBA Assistant Governor Sarah Hunter also said that the labour market remains tight but noted that there were signs that wage growth is likely past its peak and set to slow further.