Asian currencies are weakening due to uncertainty in US-China relations denting the yuan
Asia FX, On Friday, most Asian currencies weakened amid concerns about escalating trade tensions between the U.S. and China, boosting demand for the dollar as a safe-haven asset despite ongoing expectations of interest rate cuts. The dollar index and its futures edged up 0.1% each during Asian trading, poised for their first weekly gain in three weeks. These gains marked a rebound for the greenback from nearly four-month lows, supported by market expectations that the Federal Reserve will initiate interest rate reductions starting in September. Despite recent sessions where Asian currencies benefited from these expectations, they retreated on Friday due to apprehensions surrounding deteriorating U.S.-China relations. Furthermore, uncertainty surrounding the U.S. presidential race, with increasing calls for President Joe Biden to forego reelection, kept investor risk appetite subdued.
The Chinese yuan is hovering near eight-month lows amidst trade tensions and concerns about economic growth.
Chinese yuan depreciated, with the USDCNY pair approaching levels last observed in November 2023. The currency’s decline was influenced by recent reports suggesting the U.S. might impose stricter trade sanctions on China’s technology and chipmaking sectors, potentially provoking retaliatory actions from Beijing. Even prior to these developments, the yuan had been impacted by data indicating lower-than-anticipated economic growth in the second quarter of the year. Attention has now turned to the Third Plenum of the Chinese Communist Party, where senior officials pledged additional measures to bolster economic growth without specifying the details of these initiatives.
The Japanese yen depreciated following suspected intervention measures.
the Japanese yen weakened, reversing its recent gains against the dollar. Earlier in the week, the USDJPY pair climbed above 157 yen, rebounding from levels around 155. Speculation arose about possible Japanese government intervention in the currency markets following the yen’s sharp appreciation, although officials provided few indications on the matter.
Inflation data for June showed softer-than-expected figures for Japan’s consumer price index, raising uncertainties about the Bank of Japan’s potential to raise interest rates further at its upcoming meeting later this month. Some analysts anticipate a modest 10 basis point increase from the BOJ.
Across Asia, broader currency markets weakened as investor risk appetite remained subdued. The USDKRW pair for the South Korean won rose by 0.2%, while the USDSGD pair for the Singapore dollar increased by 0.1%. Meanwhile, the Australian dollar’s AUDUSD pair saw a slight decline, and the Indian rupee’s USDINR pair reached a record high above 83.7 rupees.
India continues to face a persistent trade deficit, which has weighed on the rupee despite ongoing optimism surrounding the country’s economy.
