CNY (7.259) ▲

▪ Despite the strong pushback from the PBoC's fixings and state-owned banks' interventions, the yuan weakened near the 7.25 level against the greenback as the USD index rose above the 103.0 level due to increased safe-haven demand amid the Fed's hawkish stance. The yuan was also dragged down by weak domestic macroeconomic readings and dissipating investor confidence in China’s economic growth.

▪ The yuan may continue to trade under pressure against the USD due to the growing disparity in monetary policy between the PBoC and the Fed, as the former may continue to cut rates to support economic growth, while the latter may stand pat at 5.50% for an extended period of time. However, continued intervention by the PBoC, coupled with a potential cut in major banks' reserve-requirement ratio may continue to support the yuan to trade below the 7.30/USD threshold.

JPY (145.920) ▲

▪ The yen weakened above the intervention zone of 145.0/USD due to rising 10-year US Treasury (UST) yield and the BoJ’s dovishness. The 10-year UST rose to as high as 4.34% on Aug 21 due to the strength in the US economy and the Fed's continued openness to more tightening. Additionally, BoJ's Ueda dovish remarks at the Jackson Hole symposium exerted further pressure on the yen.

▪ Despite the recent downside surprise in JOLTS job openings and ADP employment readings, the market may continue to focus on the non-farm payroll report tonight. Any significant downside miss may further support the case for the Fed to end its interest rate hiking cycle, which would benefit the yen. Domestically, any upside surprise from the August core inflation reading and the BoJ's interest rate decision could boost the yen to trade closer to the 140.0/USD level.

Source: Kenanga Research - 1 Sept 2023