Today sees the Chinese Yuan falling the most amongst Asian Currencies, as it hit a three-month low following the surprise rate cut by the central bank, which raised concerns over the Nation’s slowing economic growth.
The yuan sank 0.2% to 6.7881 to the dollar, a level last seen in May after the People’s Bank of China cut its loan prime rate to 2.75% from 3.70% on Monday.
The rate cut was influenced by the Chinese retail sales and industrial production data, which grew less than expected in July,
The second-largest economy in the world’s weakness began with the zero COVID 19 policy measures the President ruled to attack the disease when it began spreading in the nation, as the policies harmed business activities. Despite the policy’s negative impact, the government is hell-bent on pursuing its stringent policy.
This has caused the Chinese markets to suffer, with analysts downgrading their economic growth outlook for the year and denting global commodity markets with weaker demand.
The weak economy in China is spreading to other Asian Markets as the country is a major trading partner of others. The Australian Dollar dwindled above 1% yesterday before slightly rising this morning.
Other currencies depending on China for exportation, like the Indonesian Rupiah, and Philippine Peso fell between 0.1% and 0.3 %. Other currencies fell sharply on Monday after the rate decision.
ING downgraded its Chinese economic growth forecast to 4% from 4.4% for 2022, citing the increased economic headwinds from slowing activity.
Iris Pang, the Chief Economist China at ING, wrote in a note. “Real estate property construction, home sales, and mortgages are just part of the weaknesses we have seen in the Chinese economy. Export demand could also weaken… this will derail job growth in China, creating a vicious cycle on consumption and economic growth despite COVID measures becoming more flexible.”
The USD rose after the Chinese data and rate cuts, further pressuring most Asian units. The dollar index and dollar index futures traded flat on Tuesday after adding nearly 1% each in the prior session.
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