In the realm of Asian currencies, Tuesday presented a mixed scenario, as the hope surrounding a U.S. debt ceiling agreement contended with apprehensions regarding a more hawkish Federal Reserve. Meanwhile, the Chinese yuan experienced a fresh six-month low due to a significantly weaker daily fixing.
The yuan plummeted by 0.4% against the dollar, reaching its feeblest point since early December. This decline ensued after the People’s Bank of China set a markedly dovish midpoint rate for the day, conveying cautious signals to the market.
On Tuesday, the central bank established a yuan fix of 7.0818 against the dollar, considerably weaker than the 7.0575 observed during the previous session. This maneuver implies a forthcoming devaluation of the yuan, following its breach of the psychologically significant 7 level earlier this month. Up until now, the PBOC has made minimal efforts to bolster the currency.
Experts speculate that this move may be a deliberate attempt to weaken the yuan and bolster export earnings, particularly as domestic demand diminishes. The focus this week will be on Chinese manufacturing and service sector data for May, which could provide further insights into an economic recovery following a series of lackluster figures in April.
Sentiment towards China was additionally dampened by concerns of deteriorating relations with the United States, after Beijing declined an invitation for a meeting between the defense ministers of the two countries.
In the offshore market, the yuan experienced a 0.4% decline, crossing the 7.1 threshold for the first time since November 2022.
Meanwhile, the broader Asian currencies exhibited a mixed performance, as market participants weighed the optimism surrounding a potential agreement to raise the U.S. debt ceiling against mounting apprehensions of further interest rate hikes by the Federal Reserve and worsening economic conditions.
The Australian dollar witnessed a 0.1% decline, while the Philippine peso experienced a significant setback of 0.7%, notably underperforming its regional counterparts.
On Tuesday, the dollar lingered around two-month highs, with both the dollar index and dollar index futures witnessing a modest increase of approximately 0.1%. Last week’s higher-than-expected U.S. inflation data intensified expectations for additional rate hikes by the Fed. The focus this week squarely rests on the U.S. nonfarm payrolls data, slated for release on Friday, as it could provide further insights into monetary policy decisions.
Nonetheless, profit-taking in the greenback, following a robust period of gains, benefitted Asian currencies. The Japanese yen advanced by 0.2% from its six-month low against the dollar, while the Taiwan dollar gained 0.3%.
The Indonesian rupiah also strengthened by 0.3%, rebounding from the pivotal 15,000 level against the U.S. dollar.