China’s yuan to continue to gain against US dollar, but outlook hinges on Fed: analysts
China’s yuan gained 1.9 per cent against the US dollar in August, which represented the largest monthly change since November
China’s yuan is likely to continue its gains against the US dollar, although further sustained appreciation would largely depend on the scale of the interest rate cuts by the US Federal Reserve, as well as the recovery in the world’s second-largest economy, analysts said.
“The key driver for yuan, together with other Asian currencies, will be the extent of the Fed rate cutting cycle,” said Heng Koon How, head of markets strategy at UOB Group.
“We do expect further possible gradual monetary policy easing from the People’s Bank of China going forward, but the key driver will remain Federal Reserve rate cuts, driving Asian currencies recovery amidst the weaker US dollar backdrop.”
On Monday, the People’s Bank of China set the midpoint rate – around which the yuan is allowed to trade in a 2 per cent band – at 7.1027 per dollar, which was its strongest since May.
The yuan gained 1.9 per cent against the US dollar in August, the largest monthly change since November.
As US inflation has continued to ease, it has cleared the way for a potential first interest rate reduction by the US Federal Reserve since March 2022, which has weakened the outlook for the US dollar.
