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Yuan hits week-low after Dollar boosted by U.S sales data

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A stronger Dollar weighed on the Yuan on Friday as economic data coming out of the U.S. fuelled predictions that the Federal Reserve will soon act to taper its asset purchases, and as China’s central bank’s daily fixing hit a one-week low.


Following an opening of 6.4550 per Dollar, the spot Yuan dropped to its weakest point since 9 September at 6.4626. The currency edged down after the People's Bank of China set its midpoint rate at 6.4527 before the market opened, the weakest fixing since 10 September.


Although the rate moved back up to recoup some of the losses by midday to trade at 6.4548 – marginally stronger against the Dollar on the day – traders said it would still be guided by moves in the U.S. dollar index.


In addition, the offshore Yuan edged up against the Dollar to trade at 6.4525 on Friday, Reuters reports.


"USDCNY rebounded more than 300 pips from lows, still mainly impacted by the direction of the Dollar index and rising expectations of Fed tightening," according to a trader at a foreign bank. "It's possible it could still return to the 6.5 handle."


Moreover, the Dollar index hit a three-week high of 92.965 on Thursday following a surprise increase in U.S. retail sales in August, going against the drop in consumer confidence. It fell to 92.86 on Thursday.


In addition, any action taken by U.S. monetary authorities towards tightening are in contrast with the focus on gradual easing in China. According to Capital Economics markets economist, Jonathan Petersen, a likely structural decline of the property sector and the impact of a debt crisis at China Evergrande Group may also weigh on the Yuan.


"Growing financial stability risks (whether perceived or realised) may increase the likelihood of capital flight by both domestic and foreign investors …  To avoid a crisis and manage structural strains amid slowing growth, we expect further easing from policymakers in China," he said.


"We think that there will be more cuts to the RRR and the PBOC's policy rates in the coming months. Cuts to the RRR have tended to precede falls in the Renminbi, and we think this pattern will hold."

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deVere Group – Foreign Exchange’s Public Relations Department deals with all areas of the media and external communications including international, national, regional, local, trade, consumer, print, broadcast, social and online. The Department aims to provide a helpful service to journalists, broadcasters and editors, amongst others, and reply to all media enquiries, including urgent enquiries out of hours, within agreed deadlines.

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Our press office does not have access to client details and will not be able to assist with individual client enquiries. Please contact deVere Group – Foreign Exchange’s Head of Public Relations on [email protected] or call +44 2071220925.