The U.S. dollar appeared poised to secure its lengthiest weekly winning streak in nine years, fortified by a resilient stream of U.S. economic data that has cast uncertainty over the Federal Reserve’s rate-hike trajectory.
In Asia, market participants kept a keen eye on the Chinese currency’s movements, particularly after the onshore yuan endured a tumble to a 16-year low in the preceding session.
The U.S. dollar index, gauging the greenback against its primary counterparts, held steady at 105.02 during early trading, remaining within close proximity to the previous session’s six-month peak of 105.15.
The index appeared on course to prolong its ascendancy into an eighth consecutive week, boasting an overall gain of 0.7% thus far.
The euro, the most significant constituent of the dollar index, grappled with eight consecutive weeks of decline, with the single currency showing marginal recovery at $1.0701, following its dip to a three-month nadir of $1.0686 on Thursday.
Ray Attrill, Head of FX Strategy at National Australia Bank (OTC:NABZY), remarked, “This week’s narrative has centered on the resilience evident in the data… The market sentiment is that the U.S. outlook seems considerably brighter compared to the rest of the world.”
Data released this week revealed an unexpected acceleration in the U.S. services sector in August, coupled with jobless claims plunging to their lowest levels since February in the prior week. Conversely, industrial production in Germany, Europe’s largest economy, fell slightly more than anticipated in July.
“Drawing a comparison between the current growth fundamentals of Europe and the U.S., the United States appears to maintain a distinct advantage,” noted Attrill.
Similarly, the British pound languished in close proximity to Thursday’s three-month low, last valued at $1.2484, with a weekly loss exceeding 0.8%.
Challenging Times for the Chinese Yuan
The offshore yuan managed a slight uptick of 0.05%, reaching 7.3379 per dollar. Nevertheless, it remained in proximity to the 10-month low of 7.3490 recorded in August. The currency is currently set to close the week with a nearly 1% loss against the dollar, marking its weakest performance in approximately a month.
China’s yuan has experienced a steady depreciation since February due to the faltering post-pandemic economic recovery and an expanding yield gap in comparison to other economies, notably the United States, impacting capital flows and trade.
The onshore yuan, which reached its feeblest level since 2007 on Thursday, has depreciated nearly 6% against the dollar this year, placing it among the weakest-performing Asian currencies, alongside its offshore counterpart.
Alvin Tan, Head of Asia FX Strategy at RBC Capital Markets, expressed his expectation: “I anticipate USD/CNY to ascend to 7.50 by mid-2024 because there seems to be no significant fiscal stimulus in sight, and consequently, monetary policy will be required to continue shouldering part of the burden of supporting the economy.”
The rapid depreciation of the yuan has compelled authorities to intervene, attempting to decelerate its depreciation.
The Australian dollar, often regarded as a liquid proxy for the yuan, recorded a 0.07% gain, reaching $0.6381. Nonetheless, it is on track to close the week with a loss exceeding 1%.
Likewise, the New Zealand dollar appeared poised for a loss of roughly 0.9% for the week, last trading at $0.5890.
Japanese Yen Faces Uphill Battle
Traders also monitored the struggling yen, which managed a 0.15% increase to 147.06 per dollar. However, it remained on the weaker side of the pivotal 145 level, prompting Japanese authorities to intervene last year.
While officials have intensified their verbal interventions in defense of the yen, they have also continued to emphasize the necessity of maintaining the Bank of Japan’s ultra-loose monetary policy.
