China woes drag on yuan, Aussie; pound sways after UK inflation rate slows

China woes drag yuan, Aussie; pound swings after UK inflation rate slows

SINGAPORE (Reuters) - Growing concerns about a disruptive Chinese economy pushed the Australian dollar and yuan to nine-month lows on Wednesday, while the greenback remained broadly flat, supported by a resilient U.S. economy.

The yen was teetering in a key intervention zone that kept traders on guard, while the pound settled slightly higher after data on Wednesday showed Britain's year-on-year consumer price inflation slowed to 6.8% in July. The pound initially rose more than 0.2% immediately after the data release, though it later pared those gains and was last 0.04% higher at $1.27075.

With inflation still well above the Bank of England's 2% target, it is likely that the central bank will need to raise rates further, even if it threatens to damage growth. In Asia, the yuan fell to its lowest level since November in both onshore and offshore markets, falling as low as 7.2989 per dollar and bottoming out at 7.3379, respectively.

That extended Tuesday's slide after a flurry of Chinese data missed forecasts and prompted Beijing to unexpectedly cut its key monetary policy rates as authorities there raced to prop up an economy that has been losing steam rapidly in recent months.

In contrast, the dollar was on the front foot after US retail sales beat expectations in July, underscoring its economic resilience and bolstering arguments that the Federal Reserve is keeping rates higher for longer. China's gloom similarly saw the Australian and New Zealand dollars, often used as liquid proxies for the yuan, fall to nine-month lows.

"Seeing is believing. Markets still want to see much more tangible evidence that not only monetary but also fiscal support is coming to revive growth (in China)," said Ray Attrill, head of FX strategy at National Australia Bank.

"Until they see any evidence of that, they will still be of the view that not enough is being done or that China is not serious enough about supporting growth to really bring about a meaningful shift in sentiment," he added expectantly. downward pressure to hold on Aussie or Kiwi for now.

The Aussie fell roughly 0.4% to $0.64285, while the kiwi fell to a low of $0.5932 in early Asia. It was last 0.34% higher at $0.5971, drawing support from a slightly hawkish tone from the Reserve Bank of New Zealand (RBNZ).

 The RBNZ kept its cash rate steady on Wednesday, as expected, but moved slightly as it expects to start cutting borrowing costs by 2025.The dollar index was down 0.08% at 103.12, although it was not far from a more than one-month high on Monday, thanks to higher returns on upbeat data.

The benchmark 10-year U.S. Treasury yield remained elevated on Wednesday and was last at 4.1934%, having jumped to its highest level since October at 4.2740% on Tuesday. The two-year government bond yield was last at 4.9205%.

The euro gained 0.11% to $1.09155, while the pound rose 0.02% to $1.27045.

Elsewhere, a falling yen also kept traders wary of intervention, with the currency now hitting the key 145 per dollar level for four sessions, a zone that triggered a massive dollar selloff by Japanese authorities in September and October last year. "Markets are likely on edge as they remain wary of any moves by the Ministry of Finance (MoF) and (Bank of Japan)," Maybank analysts said in a note.

Policymakers have not been as vocal in their rhetoric against defending the weakening yen as last year, with Finance Minister Shunichi Suzuki saying on Tuesday that authorities are not targeting absolute currency levels for intervention.

The global financial environment continues to experience turbulence as China's economic woes weigh on the yuan and Australian dollar. At the same time, the British pound finds itself in the middle of fluctuations caused by the slowing rate of inflation in the United Kingdom. In this article, we delve into the continued impact of China's economic woes on the yuan and Australian dollar, while analyzing the volatility of the pound in light of the latest UK inflation data.

China's economic struggles and their impact on the yuan and Australian dollar:

As a major player in the global economy, China has a significant influence on currency markets. Recent economic setbacks, including slowing growth and trade tensions, have cast a shadow over China's economy, leading to drag on the yuan and Australian dollar. Investors are increasingly concerned about the ripple effects of China's challenges, which are not only affecting regional trading partners, but are reverberating around the world.

As China's economic growth trajectory slows, its demand for commodities, particularly from resource-rich countries such as Australia, is falling. As a result, the Australian dollar, often seen as a proxy for global growth due to the country's heavy reliance on commodity exports, is facing downward pressure. This scenario presents a challenge for Australia's policymakers, who must navigate the delicate balance between boosting domestic growth and maintaining currency stability.

Pound swings amid UK inflation slowdown:

Across the globe, the UK is struggling with its own economic dynamics, primarily centered around inflation. Sterling has shown significant volatility as inflation rates in the UK experience a slowdown. This can be attributed to a combination of factors, including supply chain disruptions, oil price fluctuations and shifts in consumer behaviour.

The Bank of England's response to this easing of inflation has implications for the future trajectory of the pound. Policymakers need to assess whether the slowdown is temporary or indicative of broader economic weakness. A cautious approach to monetary policy could lead to a more dovish pound, while belief in the transitory nature of inflation could lead to a rebound.

The interconnected nature of today's global economy means that economic events in one region can have far-reaching effects on currencies and financial markets around the world. The ongoing struggles China faces cast a shadow over the yuan and Australian dollar, underscoring the interconnectedness of economies and the importance of prudent policymaking. Meanwhile, the volatility of the British pound in response to the UK's slowing inflation rate highlights the delicate balance policymakers must strike between economic stability and growth. As these scenarios continue to unfold, investors and analysts will remain vigilant and closely monitor the key indicators that drive currency movements on the international stage.