Yuan dips after China cuts rates; Swedish krona, Aussie slide

THE yuan slipped towards a seven-month low on Tuesday (Jun 20) after China cut interest rates, while the Swedish krona weakened to its lowest level since 2009 against the euro on persistent concerns about the real estate sector.

China lowered its one-year and five-year loan prime rates (LPR) by 10 basis points, the first such easing in 10 months as authorities seek to shore up a slowing economic recovery.

The decision knocked the yuan lower, with the onshore yuan finishing the domestic session at 7.1744 per US dollar, the weakest such close since Nov 28.

The offshore yuan was last 0.2 per cent lower at 7.1827 per US dollar, languishing near last week’s trough of 7.1916.

“Chinese authorities are concerned about weak growth, but are wary about re-inflating the property bubble, so expectations of large stimulus to the property sector might not be met,” said ING global head of markets Chris Turner.

“The market is moving towards the view that fiscal stimulus might be lukewarm, and that’s one of the reasons why the renminbi is staying soft.”

Elsewhere, Sweden’s krona dropped 0.4 per cent to its lowest level since 2009 at 11.762 per euro. It was last at 11.759 per euro, in close proximity to 2009’s record low of 11.8.

Concerns about the property sector have been weighing on the currency, and an expected rate hike from the Riksbank next week could add to worries for investors as property makes up 80 per cent of household debt.

“The cross (euro-krona) continues its sharp rally, which is only partially related to data, normal drivers and bad news for the real estate sector,” said Danske Bank FX analyst Kirstine Kundby-Nielsen.

“Risk-off markets, periods of low liquidity and mere momentum trading have added to krona weakness,” Kundby-Nielsen added.

Elsewhere, the Australian dollar tumbled over 0.8 per cent to a session low of US$0.6784 after minutes from the Reserve Bank of Australia’s (RBA) latest policy meeting showed the RBA’s decision to raise interest rates in June was “finely balanced”.

“The debate illustrated to the market that at the next meeting in July, the decision to leave rates on hold might be taken,” said Commerzbank FX analyst You-Na Park-Heger.

“The risk of an inflation surprise does of course exist, and as a result, a rate hike in July is not off the agenda yet. Against this background, downside pressure on the Australian dollar is therefore likely to be limited for now.”

The euro rose 0.1 per cent to US$1.0931, supported by a still-hawkish European Central Bank (ECB) after two policymakers on Monday said the bank should err on the side of further rate increases, as the inflation rate could come in even higher than the ECB expects.

Sterling slipped 0.2 per cent to US$1.2799, ahead of British inflation data on Wednesday and the Bank of England’s (BOE) interest rate decision on Thursday.

Markets are expecting the BOE to deliver a quarter-point rate increase, followed by almost another 125 bps of tightening to the end of the cycle.

“Until they have confidence that the inflation is coming down, the BOE might not want to push back against market expectations for interest rate hikes,” ING’s Turner said.

“If that’s the case, then sterling probably holds onto its recent gains.”

The US dollar rose to a seven-month peak of 142.26 yen although it was last 0.4 per cent lower at 141.45.

The Bank of Japan maintained its ultra-easy monetary policy on Friday, and the yen has come under renewed pressure amid rising interest rate differentials between Japan and other developed markets.

The US dollar index, which measures the currency against a basket of six others, was little changed at 102.42. REUTERS