The Chinese Yuan dropped to a nearly two-month low on Wednesday, pressured by falling yields in China and rising yields in the U.S., as traders grew anxious over the possibility of a Donald Trump presidency bringing heavy tariffs on Chinese exports. In morning trade, the Yuan (CNY=CFXS) fell about 0.1% to 7.1341 per Dollar, its weakest level since late August. The currency is down 1.5% against the Dollar so far this month.
Meanwhile, the U.S. Dollar surged past 153 against the Yen for the first time in nearly three months, driven by robust U.S. economic data and anticipated divergence in interest rate policies among major global central banks. The Dollar is on course for its 16th gain in 18 sessions and fourth consecutive week of advances. A series of strong economic reports has tempered expectations of aggressive rate cuts by the Federal Reserve, pushing U.S. Treasury yields higher and further weighing on market sentiment.
It is seen as one of the most vulnerable assets should Republican Donald Trump win the U.S. presidency, with analysts estimating it could weaken to 7.3 per dollar or even softer should the Republicans also win control of Congress on Nov. 5.
Polls are neck and neck but prediction markets – perhaps distorted by some unusually large trades – show Trump priced for an almost 63% chance of victory against 37% for Democrat rival Kamala Harris.
At the same time, China on Monday lowered lending rates to support the economy while in the U.S., bond yields are rising as traders unwind bets on aggressive short-term interest rate cuts, owing both to Trump’s prospects and a strong economy.
In offshore trade the yua was steady at 7.1383. The central bank had fixed the midpoint rate CNY=PBOC, around which the yuan is allowed to trade in a 2% band, at 7.1245 per dollar.
China’s finance ministry said on Wednesday it would issue 5 billion yuan ($700 million) of yuan-denominated bonds in Macau on Oct. 30. Benchmark 10-year bond yields CN10YT=RR were mostly steady at 2.15%, against 4.22% in the U.S. US10YT=RR.
Technical Outlook – US Dollar/Chinese Yuan
The Chinese Yuan fell to a low of 7.1321 against the US Dollar yesterday, marking its weakest level since September. This week, the Yuan has recorded a 0.33% loss against the Dollar.
On the chart, the currency pair is trading near the upper boundary of a two-month consolidation zone. A breakout above 7.1280 could trigger a quick test of the next resistance levels at 7.1295 and 7.1315. The Relative Strength Index (RSI) and its 9-period Simple Moving Average (SMA) are signaling a bullish crossover, indicating potential upward momentum in the near term.
However, if the pair fails to breach the resistance, it could remain range-bound between 7.1270 and 7.1225.
Meanwhile, the US Dollar, which recently climbed to a four-month high on the back of US election poll results, is likely to maintain pressure on Asian currencies, including the Yuan, despite some underlying weaknesses.
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