Asia FX weakens, yuan at 6-mth low as state banks cut rates

Asia FX weakens, yuan at 6-mth low as state banks cut rates

The Chinese yuan fell 0.1%, hitting a fresh six-month low against the dollar after several major Chinese state banks began cutting interest rates on yuan deposits, which could herald a broader interest rate cut by the People’s Bank this month.

Trade data released this week pointed to more economic headwinds for the country, as it struggles to recover from three years of COVID disruptions. China’s exports unexpectedly shrank in May, while its trade surplus hit a 13-month low amid softening global demand for Chinese goods.

Focus is now on Chinese inflation data on Friday, which is expected to shed more light on a disinflationary trend in the country.

Broader Asian currencies moved in a flat-to-low range, as fears of slowing economic growth and rising U.S. interest rates kept markets largely wary of risk-driven assets.

The South Korean won rose 0.2% as the government flagged annual economic growth of below 1.6%, much lower than the 3.1% seen through 2022.

The Indian rupee was flat ahead of a central bank meeting later in the day, where the Reserve Bank is widely expected to hold interest rates steady, amid easing inflation in the country.

The Japanese yen rose 0.2% on Thursday, taking some support from an upward revision to the country’s first-quarter gross domestic product reading. The reading pushed up optimism over some resilience in the Japanese economy, as it grapples with high inflation and softening global demand for exports.

The Australian dollar rose 0.3% as expectations of more rate hikes by the Reserve Bank largely outweighed weak economic signals. Data on Thursday showed that the country’s exports and trade balance shrank through April.

The reading comes after data showed that the Australian economy barely grew in the first quarter of 2023.

The dollar moved little in Asian trade on Thursday, with the dollar index and dollar index futures steadying just below 11-week highs.

The greenback has fallen into a tight trading range amid uncertainty over a Fed meeting next week, with markets split over whether the central bank will carry out another rate hike.

U.S. inflation data is also due next week, offering more cues on the economy and potentially factoring into the Fed’s future interest rate decisions.

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