China’s yuan to break 3-week rising streak after Moody’s outlook downgrade

SHANGHAI: The yuan weakened against the dollar on Friday and is poised to snap a three-week rising streak, as Moody’s negative outlook on China’s credit rating, and the country’s mixed trade data dented fragile confidence.

But analysts expect Beijing to use various tools to prevent a rapid decline in the yuan toward year-end, amid signs the currency’s sharp rebound since mid-November is fading.

Onshore spot yuan was changing hands around 7.15 per dollar at midday, slightly softer than the previous session’s close.

If the yuan closes at the current level, it would post a roughly 0.36% weekly decline against the dollar, the biggest such drop in three months.

“Yuan sentiment remains rather fragile, especially after Moody’s downgrade of China’s credit outlook from stable to negative” this week, Maybank said on Friday.

Meanwhile, “outlook continues to be mixed and fragile for the Chinese economy.”

China’s yuan slips as market waits on economic data, key policy meetings

Data on Thursday showed that China’s exports grew 0.5% from a year earlier in November, increasing for the first time in six months. But imports fell 0.6%, dashing forecasts for a 3.3% increase.

“A strong rebound in the overall external demand momentum is still missing for China,” said Tao Wang, Chief China Economist of UBS Investment Bank.

Although the yuan appreciated more than 2.5% against a weakening dollar in November, “looking ahead, the dynamics of the interest rate differentials, USD yields and USD index could still bring episodes of volatility,” Wang said.

Kristina Hooper, chief global market strategist at Invesco, said major central banks in Western developed economies will likely ease monetary policy next year - a move that could weaken the dollar.

She also forecast that “Chinese growth in the first half of 2024 is likely to be subdued, though likely to improve in the second half.”

UBS’ Wang projects that the yuan will fluctuate around 7.15 by the end of 2024, expecting China’s central bank “will use various tools to prevent further CNY weakness much beyond 7.3.”