Kenanga Investment Bank (Kenanga), in its Asia FX Monthly Outlook today (July 1), reported on the recent movements in major Asian currencies amidst global economic uncertainties.
The yuan (CNY 7.267) weakened to its lowest level in over seven months against the USD, despite improvements in manufacturing PMI and stronger-than-expected trade and retail sales figures. Persistent capital outflows, driven by significant China-US yield differentials and the PBoC’s conservative stance, contributed to this depreciation. There is potential for the yuan to appreciate by year-end, supported by a possible Fed rate cut and a stronger Chinese economic outlook, although US election headwinds and policy uncertainties may keep the yuan subdued for now.
Meanwhile, the yen (JPY 160.880) depreciated to its weakest level in nearly 38 years against the USD. This decline was influenced by the Bank of Japan’s cautious approach amidst economic weaknesses and muted inflation pressures, compounded by mixed US economic data and uncertain Fed policies. The absence of intervention allowed the yen to breach the 160.0/USD psychological threshold.
Looking ahead, market analysts anticipate potential interventions from the Ministry of Finance around 163.0–164.0/USD. The sharp depreciation of the yen might prompt the BoJ to consider rate hikes as early as July 31st, depending on Japanese firms passing wage costs to service prices and signs of US economic weakness. These factors could support a recovery for the yen against the USD in July.
Kenanga advises investors to closely monitor US economic data and central bank actions, which could significantly impact the trajectory of Asian currencies. For those considering forex positions, cautious optimism towards a potential recovery in the yen and yuan amidst evolving global economic dynamics could present strategic opportunities in the coming months.
