Wed, December 07, 2022

The Yuan Declines as Asian Equities Fall Even Further

Yuan

Most Asian currencies modestly increased on Tuesday as the dollar’s run below 20-year highs halted. At the same time, the Chinese yuan declined to a new two-year low.

The Singapore dollar increased by 0.2%, while the Japanese yen and Indian rupee gained 0.3%. The New Zealand dollar outperformed all other currencies in the Asia-Pacific region. It rose 0.7% after CB Governor Adrian Orr predicted that the bank would likely tighten monetary policy further this year. As the dollar declined from a 20-year high after making a remarkable comeback over the previous seven sessions, Asian markets steadied. The dollar index decreased by 0.4% to 113.71, while dollar index futures were also down by 0.3%.

Outlook on Global Currency Markets

The dollar’s decline also helped currencies outside of Asia to rebound. The euro gained 0.4% after climbing from a 22-year low, while the British pound gained 0.9% from a record low. The currency and U.S. Treasury rates continued to rise, though, and there were growing worries of a worldwide recession. This week, a slew of dismal economic indicators pummeled all asset classes, driving safe haven trades into the dollar. As the difference between high-risk and low-risk debt closes, the likelihood of rising U.S. interest rates is also expected to put more pressure on Asian currencies. After a string of abrupt interest rate increases by the Federal Reserve, the value of Asian currencies fell this year.

According to a recent statement from the central bank, the benchmark rate will close the year well above 4%. One of the few anomalies on the day was the yuan depreciating 0.2%, just below a two-year low of 7.1699. China’s industrial output fell for a second straight month in August despite lingering disruptions from the COVID-19 shutdown, data showed. This led to currency losses.

Chinese industrial production has also been severely hampered by a falling yuan, which has increased the cost of importing raw materials. Given that China is a significant regional commerce hub, the country’s economic slowdown this year has also affected attitudes about Asia.

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