The recent weakening of Chinese demand has had a significant impact on commodity currencies, causing them to touch multi-week lows. This decrease in demand has led to a ripple effect across various currencies, with the yen experiencing a surge as short-sellers scramble to bail out before an upcoming central bank meeting. The Purchasing Managers’ Index figures in Europe are closely monitored to gauge whether they will support the current expectations of two rate cuts by the end of January.
The euro and sterling have been relatively stable in Asia trade, with the euro holding at $1.0848 and sterling at $1.2901. However, the yen has seen significant fluctuations, with the dollar/yen falling nearly 1% to 155.55 overnight and the euro dropping 1.3% on the yen to hit a five-week low of 168.79 yen in Asia. Other currencies, such as Mexico’s peso and the Australian dollar, have also experienced notable declines against the yen over the past few weeks.
The weakening Chinese demand has not only affected currency pairs involving the yen but has also had an impact on commodity-linked currencies. The Australian, New Zealand, and Canadian dollars have all depreciated against the U.S. dollar, with the Aussie reaching a five-week low below $0.6612 and the New Zealand dollar nearing a two-and-a-half month low of $0.5951. The Canadian dollar has also hit a six-week low with markets pricing in an 84% chance of a rate cut ahead of a central bank meeting.
As markets await further economic data releases, such as U.S. GDP and core PCE data later in the week, expectations for rate cuts and currency movements remain uncertain. Traders are closely monitoring developments in China, as well as upcoming inflation data in Australia, to assess the risk of further interest rate adjustments. The recent surprise rate cuts in China have highlighted the subdued outlook for raw material demand, leading to declines in commodities like iron ore and copper.
The impact of Chinese demand on commodity currencies has been significant, causing fluctuations in currency pairs and heightened market uncertainty. Traders and investors will need to closely follow developments in China and upcoming economic releases to make informed decisions regarding their currency positions.