Asia FX Monthly Outlook - 1 November 2023

Weakening bias to persist on expectations of Fed’s persistent higher-for-longer rhetoric

CNY (7.316) ▼

  • Despite China's better-than-expected 3Q23 GDP reading (4.9%; Consensus: 4.5%), the yuan continued to depreciate against the greenback in October due to increased demand for the USD amid the Middle East crisis. Additionally, the yuan faced pressure from slowing economic momentum in October, as evidenced by weak manufacturing PMI data. The ongoing real estate crisis further compounded the challenges, making the yuan unfavourable to investors.
  • The unfavourable US-China negative yield differential may continue to prompt capital outflows from China and exert pressure on the yuan in November. This, combined with the escalating property crisis, could keep the yuan above the 7.30/USD threshold. Nevertheless, the government's ongoing efforts to stimulate the economy and the People's Bank of China's continued intervention in the foreign exchange market may curb yuan’s further depreciation.