Renminbi depreciation in China as COVID-19 raged

Chinese renminbi depreciated as COVID-19, as opposed to the Southeast Asian Center. 

There was an opposite trend about the monetary in intra-block Asia at the end of November. Although the majority of Asian currencies, particularly those of China, fell as concerns about worsening COVID-19 conditions in China grew, Southeast Asian currencies had a tendency to rise.

Chinese renminbi and other monetary trends

China’s economy continues to slow, and the renminbi weakens in the face of COVID lockdowns, the Ukrainian war, US monetary tightening, and financial outflows. Particularly, as one of the worst-performing Asian currencies this week, the Chinese yuan dropped 0.1%. The largest economy in Asia is coping with a COVID-19 infection rate that is at an all-time high, giving rise to the re-imposition of harsh restricting measures in some key cities as well as public instability in “iPhone City,” Zhengzhou.

Contrary to above declination trending, Southeast Asian currencies outperformed Asian counterparts this week. Specifically, the Philippine peso has increased 0.8 percent this week, while the Thai baht has increased 0.7 percent. The Malaysian ringgit increased 0.7% and was the best-performing currency this week with a 2% gain after the country ended five days of political deadlock by appointing a new Prime Minister.

The impacts of a weakening Chinese renminbi on partner countries

When it comes to countries with a high level of trade with China, the currencies of those countries have recorded small fluctuations at the same time. 

Firstly, the Australian dollar was up 0.1%, but due to worries about its biggest trading partner, it is expected to fall 1.5% on a weekly basis. 

Secondly, the weakness in the US dollar led most other Asian currencies to post gains for the week. Dollar index futures were stable at approximately 105.750, while the dollar index was down 0.2% in light holiday activity. To assess the economic effects of this year’s abrupt rate increases, some Fed members advocate lesser rate increases. Markets anticipate a 50 basis point rate increase from the central bank in December, while future increases will probably depend on the rate of inflation. Smaller US rate increases benefit Asian currencies because they allow central banks in the region greater leeway to tighten monetary policy and communicate with the Fed. However, the markets are still unsure of when US interest rates will peak.

Furthermore, the Japanese yen dropped 0.1% as statistics revealed that inflation in Tokyo reached a 40-year high in November, indicating that the country may soon face greater inflationary pressures. The yen, meanwhile, is expected to increase by more than 1% this week as dovish Fed signals have aided the currency’s recovery from multi-decade lows.

Overall

There is a need for Chinese policymakers to create the ideal position for China, which is a gradual, steady increase in the value of the renminbi that promotes rebalancing. which could be a contributing factor to the mutual development of regional countries.

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