Foreign Exchange Report - 19.08.2024

The Chinese Yuan was on track for its steepest gain in a fortnight on Monday, driven by widespread Dollar selling as investors anticipated US interest rate cuts. However, it fell against a strengthening Yen. The Chinese currency rose to 7.1314 per Dollar in afternoon trading?and, at the time of writing,?stood at 7.1363, its largest one-day gain since the beginning of the month. The rally has pushed the Yuan back to the centre of its daily trading range?after months of being at the lower end, primarily due to a weakening Dollar rather than a significant improvement in market sentiment.

In addition, the Yen's gains continued to pressure the Yuan against a basket of currencies from trading partners, reaching 98.07, the lowest level since 15th January, based on Reuters calculations from official data. The Yuan also dropped 1% to 20.38 Yen, marking its largest decline since 5th August, Reuters reports. Traders are anticipating China's loan prime rate announcement on Tuesday amid a backdrop of plummeting bank lending, declining home prices, and economic uncertainty, which, according to analysts,?will likely prevent the currency from appreciating significantly. “The weak prospects for the Chinese economy and expectations for additional monetary policy easing will undermine investor confidence on Chinese assets and in turn reduce demand for the Yuan,” stated Commonwealth Bank of Australia analysts. The Yuan “is unlikely to benefit much from a decline in the US Dollar driven by an improving global economy,” they added.

There were broad declines for the greenback on Monday, which fell sharply against the Yen. Indeed, the Dollar declined over 1% to 146.01 against the Japanese currency, fuelled by investor expectations for a dovish tone in the Federal Reserve's July policy meeting minutes and Chair Jerome Powell's upcoming speech at Jackson Hole. Against a basket of currencies, the Dollar dropped to a seven-month low of 102.11.

In addition, India’s Rupee increased close to a two-week high on Monday, as the Dollar index fell to a seven-month low, leading to broad gains in Asian currencies. At the time of writing,?the Rupee stood at 83.90, a rise of around 0.05% compared to Friday’s close of 83.94. In early Monday trading, the Rupee edged up to 83.85, a high not seen since 6th August.

Elsewhere, the Euro was moving towards more than a seven-month high of $1.10475 reached last week, whilst Sterling hit a one-month top of $1.2960 earlier on Monday?and stood at $1.2957 at the time of writing.

In Australia and New Zealand, the respective Dollars hit one-month highs of $0.6694 and $0.6086?as risk sentiment rallied on expectations of a dovish outcome from the Federal Reserve. The Australian Dollar also benefited from reduced expectations for immediate rate cuts?following Reserve Bank of Australia Governor Michele Bullock's statement on Friday that it was too soon to consider easing monetary policy.

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