Asia FX Monthly Outlook - 1 July 2024

Potential recovery if US data weakens; domestic drivers hinge on central banks action

CNY (7.267) ▼

  • Despite an improvement in the manufacturing PMI and stronger-than-expected trade and retail sales figures, the yuan has weakened to its lowest level in over seven months against the USD. This decline is primarily attributed to persistent capital outflows driven by significant China-US yield differentials. Additionally, the PBoC's status quo and weak daily fixings have contributed to this depreciation.
  • While there is potential for the yuan to appreciate by the end of the year, bolstered by a possible Fed rate cut and an improving Chinese economic outlook, substantial headwinds from the US election and policy uncertainty may keep the yuan around its current level for now. Furthermore, persistent weak fixings aimed at stimulating exports and generating inflationary pressure may continue to exert downward pressure on the yuan.