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China’s yuan surges to 16-month peak on new stimulus measures


Item 1 of 2 Chinese Yuan banknotes are seen in this illustration picture taken June 14, 2022. REUTERS/Florence Lo/Illustration/File Photo

[1/2]Chinese Yuan banknotes are seen in this illustration picture taken June 14, 2022. REUTERS/Florence Lo/Illustration/File Photo Purchase Licensing Rights, opens new tab
  • China unveils biggest stimulus measures since pandemic
  • Dollar falls to 16-month low vs yuan
  • RBA holds rates steady, softens hawkish stance
  • Dollar index extends decline after soft consumer confidence data

NEW YORK, Sept 24 (Reuters) – China’s yuan hit a 16-month high against the U.S. dollar on Tuesday, after the central bank of the world’s second-largest economy revealed new stimulus measures, while the greenback extended declines against other major currencies after soft data on the consumer.

Beijing’s new plan includes a planned 50 basis point cut to banks’ reserve requirement ratios, injecting more funds into the economy and an easing of mortgage repayments for households.
The chart shows China's 5-year loan prime rate, 1-year loan prime rate, 1-year MTLF rate and 7-day reverse repo rate.
The chart shows China’s 5-year loan prime rate, 1-year loan prime rate, 1-year MTLF rate and 7-day reverse repo rate.

The Chinese yuan strengthened 0.65% against the greenback to 7.017 per dollar after reaching 7.0156 on the session.

“It hit all the things that people wanted to see – more support for the housing market, lower interest rates, reserve rate cut and that support for the stock market,” said Marc Chandler, chief market strategist at Bannockburn Global Forex in New York.

“At least initially the market is giving Beijing the benefit of the doubt … I’m not convinced that the underlying problems, the underlying challenges are really being addressed.”

The dollar index extended declines after economic data from the Conference Board showed U.S. consumer confidence unexpectedly fell in September to 98.7 from an upwardly revised 105.6 in August and below the 104.0 estimate of economists polled by Reuters as worries over the health of the labor market grew.

The dollar index , which measures the greenback against a basket of currencies including the yen and the euro, fell 0.44%, on track for its biggest daily percentage drop in two weeks, to 100.49. The dollar had fallen for three straight weeks on expectations for a rate cut from the Federal Reserve, which delivered an upsized 50 basis point cut last week.

The euro climbed 0.46% at $1.1163.

Multiple Fed officials are scheduled to speak this week including Fed Chair Jerome Powell as well as Governors Lisa Cook and Adriana Kugler.

Governor Michelle Bowman, the lone dissenter in last week’s Fed move in calling for a 25 basis point cut, said on Tuesday that key measures of inflation remain “uncomfortably above” the Fed’s 2% target, warranting caution as the Fed proceeds with its easing cycle.
The Australian dollar strengthened 0.63% versus the greenback to $0.6881, touching a 14-month high of $0.6885 after the country’s central bank reiterated that interest rate cuts were unlikely in the near term as it held policy steady, but softened its hawkish stance by saying monetary tightening was not discussed.

Analysts at Goldman Sachs said that they consider the RBA’s decision not to explicitly consider a rate cut “as a mini pivot in the dovish direction.”

A line chart that compares key inflation metrics over the past five years.
A line chart that compares key inflation metrics over the past five years.

Policy announcements are also expected from the Swiss National Bank, which is expected to cut by 25 bps, and Riksbank, which is also seen cutting by 25 bps, this week.

Against the Japanese yen , the dollar weakened 0.13% to 143.42 after Bank of Japan Governor Kazuo Ueda reiterated in a speech on Tuesday the central bank can “afford to spend time” scrutinizing developments in markets and overseas economies before tightening policy further.

Sterling strengthened 0.37% to $1.3395.

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Reporting by Chuck Mikolajczak, Editing by Nick Zieminski and Deepa Babington

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