Yen near intervention zone; Kiwi, Aussie dollars impacted by China troubles
Yen near intervention zone; Kiwi, Aussie dollars impacted by China troubles
The Yen Weakens as Concerns over China’s Economy Grow
As global markets grapple with the uncertainty surrounding China’s sputtering economy, the Japanese yen languishes near its weakest level in nine months. Traders are on high alert for any signs of intervention as they closely monitor the situation. Meanwhile, mounting concerns over China’s economic outlook and recent cuts to its key policy rates have soured the mood in Asia.
The offshore yuan, which had previously hit a nine-month low due to a slew of underperforming Chinese data, is struggling to break away from this level. This has prompted Beijing to take unexpected measures to stabilize its currency. Currently, the offshore yuan is trading at 7.3240 per dollar.
The impact of China’s gloomy economic outlook is not limited to its own currency. The Australian and New Zealand dollars, often used as liquid proxies for the yuan, have also taken a hit. They have both tumbled to their lowest levels since November in early Asia trade. The Australian dollar bottomed at $0.6440, while the New Zealand dollar slid to a low of $0.5939. The Reserve Bank of New Zealand is expected to announce its rate decision later on Wednesday, adding to the uncertainty in the market.
Aninda Mitra, head of Asia macro and investment strategy at BNY Mellon Investment Management, believes that the People’s Bank of China has led the way in delivering easing measures, but emphasizes that much more needs to be done. Mitra states, “Pressure is now piling up on policymakers to act sooner, and in a bigger way. The weakening trend in Chinese activity is not entirely unexpected. But surprises to the downside, even amidst a downbeat consensus, places the onus on policy makers to walk the talk.”
In addition to concerns about China, traders are closely monitoring the Japanese yen. Its continuous slide has raised speculation of intervention from Japan. The yen has crossed the closely-watched 145 per dollar level for four consecutive sessions, a zone which triggered heavy dollar selling by Japanese authorities in September and October of last year. Although policymakers have not been as vocal in their opposition to a weakening yen as they were in the past, traders remain vigilant. Finance Minister Shunichi Suzuki clarified on Tuesday that authorities are not targeting absolute currency levels for intervention.
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Ray Attrill, head of FX strategy at National Australia Bank, suggests that if the yen approaches 150 per dollar, intervention becomes increasingly likely. However, at the current level, he believes that while verbal intervention may continue, actual intervention is not yet certain.
As the broader currency market adjusts to the shifting global landscape, the US dollar has gained momentum. This comes after US retail sales surpassed expectations in July, highlighting the country’s economic resilience and strengthening the case for the Federal Reserve to maintain higher interest rates.
The positive retail data has caused the benchmark 10-year US Treasury yield to jump to its highest level since October, reaching 4.2740%. The two-year Treasury yield has also risen to an over one-month peak of 5.0240%. With Treasury yields on the rise, the US dollar has predictably benefited. The dollar index has experienced a slight gain, reaching 103.22.
In other currency news, the euro remains stable at $1.0902, while the sterling has dipped 0.05% to $1.2696. Market participants are eagerly awaiting UK inflation data, due to be released later on Wednesday.
As the global economy faces uncertainties and challenges, market participants are closely monitoring currency movements and key economic data to gauge the overall health and stability of global markets. The intertwined relationships between major currencies, central bank policies, and economic indicators continue to shape the direction of the financial markets.
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