Most Asian currencies moved little on Thursday as markets weighed weak economic data from China against growing bets that the Federal Reserve will pause its rate hike cycle.
But optimism over such a scenario was largely dulled by signs of continued weakness in China, as data released on Thursday pointed to a sustained decline in manufacturing activity. Concerns over a property market meltdown also grew as Country Garden Holdings (HK:2007), China’s biggest property developer, logged a steep interim loss and warned of a potential default.
Chinese yuan flat after mixed PMIs, rate cuts in focus
The yuan fell 0.1% on Thursday, with further losses in the currency limited by a substantially stronger-than-expected daily midpoint fix from the People’s Bank of China (PBOC).
Strong fixing and currency market intervention has helped the yuan weather growing headwinds from an economic slowdown, although the currency was still trading close to 10-month lows.
Data on Thursday showed that China’s manufacturing sector contracted for a fifth straight month in August, albeit at a smaller-than-expected pace, while non-manufacturing activity missed expectations.
The readings presented little improvement in Asia’s largest economy, as it grapples with slowing demand and a potential real estate crisis.
“A further slowdown in the service sector recovery coupled with a slight moderation in manufacturing contraction does not amount to any meaningful improvement to the overall economic backdrop,” analysts at ING wrote in a note.
Markets are now awaiting more monetary stimulus measures from the PBOC, with media reports suggesting that the bank planned to cut mortgage and yuan deposit rates in the near future. Any more rate cuts bode poorly for the yuan.
Concerns over China weighed on most other Asian currencies. The Taiwan dollar sank 0.2%, while the Singapore dollar lost 0.1%. The South Korean won was flat even as data showed industrial production and retail sales fell more than expected in July.
Dollar steadies after Fed pause bets spur steep losses, more data awaited
Weaker-than-expected economic readings pushed up hopes that the Fed will have little headroom to keep raising interest rates.