Category: Currency

Yen swings stir talk that Japan is in the FX market once again

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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A late yen surge in New York fueled speculation Japanese authorities intervened for a second time this week, before the currency began to weaken again in Tokyo trading, paring much of the move.

The yen advanced more than 3% and hit 153.04 per dollar as more than $4 billion of yen-related futures were exchanged in the final stretch of the US trading session. That was the largest number of contracts since February 2, according to volumes data recorded by CME. Japan’s currency then weakened more than 1% in Asia trading Thursday to around the 156.10 level.

“It would certainly appear to have the characteristics of an intervention,” said Nathan Thooft, global chief investment officer for the multi-asset solutions team and senior portfolio manager for Manulife Investment Management. “Repeated attempts certainly send a message to the market and while it may not fully hold, it should have some impact on preventing further meaningful weakness.”

Japan’s top currency official Masato Kanda said he had nothing to say on whether Japan intervened in the yen when asked in the aftermath of the move. The comment appears to fit in with Tokyo’s strategy of trying to keep market players in the dark over its stance on taking action and keeping them wary.

The currency market has been on alert for months about potential intervention, with Japanese officials ratcheting up their rhetoric around the pace of the yen’s slide. On Monday, the currency erased losses and quickly gained almost 3% after touching a 34-year low.

For traders around the world, all signs pointed to one cause: Japan was tired of jawboning and had taken action to defend its currency.

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Read More: Yen’s Meltdown and Rebound Are Just a Taste of What’s to Come

While officials declined to comment on any intervention, a Bloomberg analysis of the central bank’s current account suggests the nation probably spent about ¥5.5 trillion ($34.8 billion) to support the currency on Monday. Markets won’t know for sure until official figures are published on the last day of May, showing whether Japan bought or sold yen this week.

Uphill Battle

Policymakers will need to spend a lot of money to meaningfully boost the yen. In addition, the gulf between Japan’s ultra-easy monetary policy — emphasized by the Bank of Japan’s recent decision to keep monetary policy unchanged at its April meeting — has made its currency particularly susceptible to losses.

Japan faces “an uphill battle to sustainably strengthen the yen given strong fundamentals such as wide interest rate differentials between the US and Japan and healthy risk appetite,” Kristina Clifton, senior currency strategist at Commonwealth Bank of Australia, wrote in note.

While some past cases of extreme moves in the yen have been attributed to algorithmic trading, the combination of the spike at the end of the trading day when liquidity is usually thinner could have provided an opportune moment for Japanese authorities to act.

“Illiquid conditions close to end of day provided a good environment for another move to be effective,” said Helen Given, a foreign-exchange trader at Monex.

Looking ahead, the likelihood of sharp moves in the market during a looming four-day holiday in Japan and with London markets closed on Monday may have also been a cause for concern in the minds of Japan’s currency officials. That may have been a motive for taking pre-emptive action, if officials did intervene.

Strong Dollar

Japan is not alone in struggling to address weakness in its currency as persistently-high US interest rates and the strong dollar reverberate through markets around the world. Last month, the US, Japan and South Korea made a trilateral statement on the recent sharp currency moves. The US Treasury didn’t immediately respond to a request for comment on Wednesday.

Earlier on Wednesday, the US Federal Reserve held interest-rates steady, with Chair Jerome Powell indicating that the central bank was unlikely to cut any time soon.

“After Powell’s speech, US interest rates and the dollar went down but the yen didn’t move much, so Japanese authorities might have tried to do another intervention at the thin market around NY close,” said Takafumi Onodera, who’s in charge of sales and trading at Mitsubishi UFJ Trust & Banking Corp. in New York.

The dollar pared losses against other Group-of-10 currencies in the wake of Powell’s speech. The more-than-3% advance for the yen was the currency’s largest intraday gain since December 2023.

Still, with markets jumpy and looking for action, some said Wednesday the appearance of possible intervention could instead be the result of over-extended positioning.

“If you are into conspiracy theories, then you’d probably believe a nefarious plan on the yen was hatched,” said Martin Whetton, head of markets strategy at Westpac Banking Corp. in Sydney. “But the reality would be a holiday Monday, US rates pricing that had shifted so far to the hawkish pivot from Powell and FOMC, and a stretched yen ripe to be moved.”

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Japanese Yen slides past 160 against the US Dollar, a first since 1990

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The yen tumbled past yet another psychological milestone for the first time since 1990, raising questions about why the Japanese authorities don’t appear to have stepped in to support the currency.

The Japanese currency dropped as much as 1.2% to 160.17 per dollar on Monday amid thinned liquidity due to a local public holiday, before trading at 159.17 as investors pile on bearish positions ahead of the Federal Reserve’s meeting later this week.

“Will a dog chase an airborne frisbee? Yes, markets appear to be trying to push dollar-yen towards 160 in the absence of official intervention,” said Vishnu Varathan, head of economics and strategy at Mizuho Bank Ltd. in Singapore. “It shows extreme speculation in the spot and options space as well, and how investors are so hyper-sensitive to anything yen and risk of intervention.”

The move in the yen comes before the US central bank is scheduled to hold a policy meeting during which it may signal the need to keep interest rates elevated amid sticky inflation — a move that will support the dollar and undermining the appeal of yen assets.

The Bank of Japan last week indicated financial conditions will remain easy, though policymakers have repeatedly warned that depreciation won’t be tolerated if it goes too far too fast. Earlier this month, the nation’s finance minister also flagged concerns over the yen’s decline to US Treasury Secretary Janet Yellen, which market participants saw as laying the groundwork for intervention.

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Fidelity sees rupee as top carry trade pick on RBI’s tight grip

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The Indian central bank’s tight grip on the rupee is boosting the allure of the currency for carry trades, according to Fidelity International.

The rupee rewards investors with a high yield than regional peers, and together with low volatility, makes it “arguably one of the most attractive currencies on the planet,” Paul Greer, a money manager at Fidelity in London, said in an interview.

The Indian rupee is among the most stable Asian currencies, thanks to repeated interventions from the Reserve Bank of India, as it seeks to slow its decline near a record low. That strategy has its risks as traders may face losses in case of a sudden policy shift.

“When I look at the Indian rupee, I don’t think about it as an appreciation trade,” said Greer. “Because RBI has been so tight on both sides of the range, the carry-to-volatility ratio is what many investors are attracted to.”

Even while the rupee fell to a record in April, it remains the best-performing Asian currency this year. The currency is down just 0.2% against the dollar, while the Indonesian rupiah and Thai baht have declined more than 5%.

Underpinning the appeal of the rupee is that the RBI has kept interest rates unchanged, while some of its Latin American counterparts have been easing policy. The policy divergence has lured overseas funds into India, also driven by the inclusion of Indian bonds into JPMorgan Chase & Co.’s global index.

India’s near-record foreign exchange reserves of $643 billion have also given the RBI firepower to intervene and curb rupee swings. The yield on benchmark 10-year bond at about 7.20% is the highest among major Asian markets, luring foreign investors.

“The real benefit of India is the carry, which is why a lot of people like it,” Greer said. “Over the coming months and quarters, many investors will be looking to build or add to exposure in this particular market.”

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Yen drops to a fresh 34-year low as Bank of Japan keeps key rate unchanged

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The yen’s relentless decline continued in the wake of the Bank of Japan keeping its key interest rate unchanged, with the currency touching a fresh 34-year low versus the dollar.

It weakened 0.3% to 156.18 as of 1:39 p.m. in Tokyo. The extended slump has heightened speculation that authorities may intervene in the market as soon as today, with further risks to come later when data on the Federal Reserve’s preferred inflation gauge is released.

Investors are on high alert for any rapid snap-back in the yen. They are also wary that Japan may not confirm any intervention, and that some past cases of extreme rebounds have been attributed to algorithmic trading.

The Topix share index rose as much as 1.1% after the BOJ decision, with real estate companies extending gains. The yield on the benchmark 10-year bond slipped to 0.91% from 0.93% earlier in the day.

Meanwhile, the yen is the worst-performer among the Group-of-10 major currencies this year, having already slid 9%. Policymakers have repeatedly warned that depreciation won’t be tolerated if it goes too far too fast. Finance Minister Shunichi Suzuki reiterated after the BOJ meeting that the government will respond appropriately to foreign exchange moves.

“And yet again, BOJ has proved that it can surprise dovish to even the most dovish expectation on the Street,” said Charu Chanana, a strategist at Saxo Capital Markets. US personal consumption data later in the day will be on the radar, “and we are back to waiting for an intervention to stop the rout in the yen. But any intervention, if not coordinated and without the support of a hawkish policy messaging, will still be futile,” she said.

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Yen weakens past key 155 level, adding to intervention risk

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The yen weakened beyond 155 per dollar for the first time in more than three decades, fueling risk that the key level may prompt Japan to step into the market.

The Asian nation’s currency depreciated as much as 0.4% to a session low of 155.37 on Wednesday, marking the first time since June 1990 the yen crossed the 155 level against the greenback. The yen pared the move and traded at 155.21 as of 7:27 AM in Tokyo on Thursday.

“Intervention risk remains high, regardless of the level,” said Win Thin, global head of markets strategy at Brown Brothers Harriman.

Helping drive the yen lower Wednesday was demand for contracts to sell it against both the greenback and euro, according to data from the Depository Trust & Clearing Corporation. That included a $300 million purchase of options that expire in a month to sell the Japanese currency at 156 per dollar, pressuring the yen in the spot market.

Japanese officials have said repeatedly that they will take necessary action to address excessive moves in the yen if needed. The authorities have emphasized a focus on the pace of the currency’s depreciation rather than a precise level. Traders will be alert to any comments from officials in Tokyo on Thursday that suggest a higher state of readiness for intervention.

In a trilateral statement last week, the US, Japan and South Korea said they would continue to consult closely on foreign-exchange market developments while acknowledging serious concerns of Japan and Korea about the recent sharp depreciation in their currencies.

The yen has slumped about 9% so far this year, making it the worst performing currency of Group-of-10 countries, even after the central bank in March raised the short-term policy rate for the first time since 2007. Adding to the currency’s plight is the risk of higher oil prices amid rising tensions in the Middle East because they could hurt Japan’s trade balance.

Traders and strategists are looking ahead to the conclusion of the Bank of Japan’s policy meeting on Friday, at which nearly all economists surveyed by Bloomberg expect the central bank to keep monetary policy on hold.

“A surprising rate hike would make much more sense than FX interventions,” said Piotr Matys, senior FX analyst at InTouch Capital Markets Ltd. While Matys sees it as a low-probability scenario, “the most efficient way to stabilize a battered currency is to surprise the market with a rate hike.”

The Federal Reserve, meantime, is poised to deliver a monetary policy decision next week — with investors closely watching the gap in yields between the US versus Japan. An update of the Fed’s preferred inflation gauge is set to come out after the BOJ decision on Friday.

“The Ministry of Finance will probably be hoping that the Bank of Japan can offer some hawkish commentary after Friday’s policy meeting,” said Jane Foley, head of foreign-exchange strategy at Rabobank. “However, if US PCE comes in strong later that day, it would reinforce US dollar strength.”

Japan intervened in markets three times in 2022 to prop up the yen after the currency weakened to 151.95 against the dollar. Tokyo spent more than ¥9 trillion ($58 billion) across three occasions in that campaign, which was conducted largely without criticism from international allies including the US.

What made the September-October 2022 intervention successful “was that it coincided with a peak in US rates,” said Marc Chandler, chief market strategist at Bannockburn Global Forex LLC. “BOJ officials cannot be as confident now.”

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Japan ‘very close’ to currency intervention, former forex chief says

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Japan is on the brink of currency intervention if the yen weakens any further, according to one of the country’s former top currency officials.

“Amid no change in US and Japan interest rates, the yen has depreciated against the dollar quite rapidly,” said Mitsuhiro Furusawa, former vice minister of finance for international affairs, in an interview with Bloomberg on Tuesday.

“Should this trend continue, intervention will come,” Furusawa said, adding that “we are very close.” He cited market reaction to US data as a factor that may nudge Japanese authorities to act and pointed to last week’s joint statement between Japan, the US and South Korea as an indication that Tokyo’s allies won’t stop it entering the market.

The comments from the former finance ministry official come with Japan’s currency close to Tuesday’s fresh 34-year low of 154.88 against the dollar. Finance Minister Shunichi Suzuki reiterated Tuesday that authorities are prepared for action to address the situation.

The yen continues to look vulnerable with a Bank of Japan meeting this week and the Federal Reserve’s preferred gauge of inflation due out later on Friday.

Furusawa sees the possibility of the BOJ raising interest rates again as early as July, but, like almost all economists surveyed by Bloomberg, he expects no rate change on Friday.

Market participants and policymakers are wary that the widely expected stand-pat decision on Friday after last month’s historic rate hike may trigger another slide in the currency.

Allowing market players to push the exchange rate can’t be tolerated, Furusawa said. “No one thinks it’s a good idea to leave speculators unchecked,” he said.

Furusawa expects Japan’s authorities to step into the market before the currency reaches 160 yen to the dollar. Some market participants, such as Bank of America Corp., foresee the yen sliding further to 160.

Japan spent around $60 billion intervening in currency markets in September and October of 2022 when the yen approached the 146 and 152 levels.

Last week, Suzuki issued a rare joint statement with US Treasury Secretary Janet Yellen and South Korean Finance Minister Choi Sang-mok in Washington, stating that they would continue to consult closely on foreign exchange developments. The three nations also acknowledged the serious concerns felt by Japan and Korea over the recent sharp depreciation of their currencies.

“With the statement, it’s hard to imagine the US will stop Japan if it actually takes action,”said Furusawa, while noting that the statement does not give Japan a complete go-ahead to intervene.

The main factor behind the recent weak yen is the rate differential between Japan and US, according to Furusawa, who now heads the Institute for Global Financial Affairs at Sumitomo Mitsui Banking Corp. Furusawa previously served as the finance ministry’s top currency official from 2013 to 2014 before joining the International Monetary Fund as deputy managing director.

The difference in policy rates between the two countries looks set to remain unchanged until the summer at least, with surveyed economists flagging October as the most likely month for the BOJ to move again.

Governor Kazuo Ueda reiterated in parliament on Tuesday that it’s appropriate to maintain an accommodative environment for a spell, while in the US, Fed Chair Jerome Powell and other officials have signaled that it’ll take longer to cut rates.

“A July hike is a possibility if the bank is convinced it can raise rates after the effects of the income tax rebate and wage hikes are seen,” said Furusawa, referring to a one-off tax break for households dealing with elevated levels of inflation. Unions have secured their biggest annual pay raises in decades this year starting from April.

At its upcoming meeting, the BOJ is expected to project 2% price growth in the fiscal year beginning in April 2026, partly reflecting the optimism surrounding wages and prices. If the bank does so, that may support the case for a July move, Furusawa said. The BOJ could then hike again later in the year, he added.

Weakness in the yen could also be a motive for the bank to move if that starts to affect inflation, but changing monetary to correct currency trends would be difficult, he said.

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Rupee off record low on likely central bank intervention, Iranian official’s comment

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The Indian rupee recovered after slipping to a record low on Friday, on likely intervention by the central bank and comments by an Iranian official that there was no missile attack on the country.

The rupee was at 83.5175 to the US dollar at 11:15 a.m. IST, marginally up from 83.5375 on Thursday. The currency had dropped to 83.5750, a lifetime low, in early trading.

The Reserve Bank of India (RBI) likely intervened in the onshore over-the-counter market and in non-deliverable forwards to help out the rupee, traders said.

The RBI “just completely knocked out” any thoughts “of a big push” higher on USD/INR, a FX trader said.

“I suspect a number of traders have been caught on the wrong side due to RBI’s resolute defence (of the rupee) and the clarification from Iran.”

Israel launched an attack on Iranian soil on Friday, sources said, in the latest tit-for-tat exchange between the two arch foes, whose decades of shadow war has broken out into the open and threatened to drag the region deeper into conflict.

Iranian media reported explosions, but an Iranian official told Reuters those were caused by air defense systems.

The Natanz nuclear site, the centrepiece of Iran’s uranium enrichment program, is in Isfahan province.

U.S. equity futures and Asian shares were off the worst levels for the session and Brent crude, having climbed past $90.50 at one point, was last at $88.86 a barrel.

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How low does the Rupee go when the Middle East erupts

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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In today’s tightly woven world, big world events like the recent flare-up between Iran and Israel rock the boat in financial markets. This latest showdown, coming right after the Russia-Ukraine crisis, is a stark wake-up call to just how much these global power struggles can mess with market stability.

To dive into the impact of the recent escalation, it is important to dig deeper into the historical trends in the currencies.

Instability in the Middle East holds significant sway over global oil markets, safe-haven assets, and currencies. As a crucial oil source, any disruption to its supply can trigger speculation-driven price hikes. These spikes historically influence global inflation rates and trade balances, particularly for countries like India heavily reliant on oil imports and, subsequently, currencies. However, it’s debatable whether these countries ( Israel, Palestine, Iran) contribute a sizable portion to the world’s oil market? Perhaps not directly, but the surrounding regions could be impacted. If major players like Saudi Arabia, Iraq, or the UAE were to face similar instability, the true impact would become evident.

A list of conflicts in the Middle East since 2000 and how long it stayed:
• Second Intifada: September 2000 to February 2005
• Second Lebanon War: July 2006 to August 2006
• Gaza-Israel conflicts or Operation Cast Lead: December 2008 to January 2009
• Israel-Gaza conflict or Operation Protective Edge: July 2014 – August 2014
• Israel- Hamas war: Oct 2023 to till date

Out of the five major historical tensions, three cases saw wars lasting hardly a month with limited impact on the financial market. The first case, the Second Intifada, endured for 4.5 years but had a limited impact on the financial market. Furthermore, the ongoing Israel-Hamas war has persisted for over six months, yet it has had a negligible impact on equities, as multiple global equities reached all-time highs during this period. Surprisingly, the yen, often considered a safe-haven currency, did not appreciate. However, gold soared to an all-time high due to central banks’ accumulation of the safe-haven asset in their reserves

Governement and central bank’s presence of mind

Over the past five years, it has been observed that governments and central banks take immediate steps to address uncertainties in the market. During the COVID-19 pandemic, the risk-off sentiment was short-lived, lasting only a couple of months. To support growth and economic activity, governments and central bankers swiftly eased their stance.

Also Read: Rupee vs US Dollar: INR falls to record low of 83.54 versus USD

Similarly, in 2022, during the Russia-Ukraine war, central banks intervened in the market to stabilise volatility and FX rates. For instance, in India, the RBI announced Sell-Buy swaps and utilized FX reserves. Additionally, during the 2023 US banking crisis, the impact on the global equity market remained minimal.

Similarly, during the Israel-Palestine war in October 2022, equities experienced modest declines of less than 2 to 3%, and oil prices remained relatively stable for the following months. Therefore, we believe that even if the Israel-Palestine-Iran conflict persists or escalates, global authorities will likely take measures to manage the situation.

Coming to the domestic factors and outlook on the Rupee during such geopolitical tension:

During wartime, crude oil prices typically soar due to concerns over supply disruptions. The possibility of Brent crude reaching $100 per barrel amidst escalating tensions in West Asia, and potentially remaining at that level in the near term, could impact key macro-indicators. According to analysis, crude oil at $100 per barrel could raise CPI inflation by 40 to 60 basis points (bps) from the RBI’s estimate, assuming full pass-through to retail consumers of automotive fuels. Additionally, it could inflate the oil import bill by $2 to $3 billion. Nevertheless, the aforementioned impacts may not fundamentally alter economic activity.

What could offset the impact of geopolitical tension?

1. RBI’s FX reserves: Over the past 1.5 years, the RBI has significantly bolstered its FX reserves, while maintaining the currency between $81.50 to $83.50 billion. After a decline to $528.37 billion in October 2022, they swiftly resumed accumulation, reaching an all-time high of $648.56 billion. In addition to foreign currency assets, the RBI has also been observed increasing its gold reserves, mirroring trends seen in other global central banks. These reserves serve as a robust pillar during periods of financial market uncertainty or significant outflows of hot money.

2. Stronger domestic fundamentals: Foreign Portfolio Investor (FPI) flows have remained robust throughout the calendar year 2024, boasting impressive inflows totaling $10 billion. Additionally, the Reserve Bank of India (RBI) holds substantial reserves, reaching a record high of $648 billion, providing a significant buffer during times of uncertainty. Furthermore, the trade balance reflects encouraging signs, standing at an 11-month low of $15.6 billion. In terms of economic indicators, inflation remains under control, hovering around 4.85%, while Industrial Production (IIP) growth stands at a healthy 5.7%. Moreover, the Current Account Deficit (CAD) and Balance of Payments (BoP) portray a balanced and favourable outlook. Lastly, both the Manufacturing and Services Purchasing Managers’ Index (PMIs) are outperforming those of peer and developed countries, underscoring the resilience and strength of India’s economic fundamentals. These factors collectively indicate a promising trajectory for the Rupee’s potential resurgence.

Outlook

Overall, we believe that the intensity of geopolitical tensions and their impact during proactive environments is minimal. Currently, governments and central banks have established a war-proof shield for their economies, prepared to take immediate action. Furthermore, being a net importing country, India can manage higher oil prices as the RBI always maintains a buffer and revisits projections. Amid the backdrop of global uncertainty, domestic fundamentals remain resilient. Therefore, we anticipate that pressure on the Rupee will be short-lived and restricted to levels between 83.50 to 83.70. In the near term, we foresee the Rupee moving towards 83 to 82.80, and over the medium term, between 82.50 to 82.00.

Also Read: Could rising global risks trigger an equities sell-off? Taimur Baig and Mark Matthews answer

Amit Pabari is Managing Director at CR Forex Advisors. The views expressed in this article are his own.

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Rupee vs US Dollar: INR falls to record low of 83.54 versus USD

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The Indian rupee slipped to its record low against the US dollar on Tuesday, April 16 amid rising geopolitical tensions in the Middle East. The rupee fell to 83.53 vs the dollar at close, after falling to an all-time low 83.54 against greenback. The currency settled at 83.45 vs the dollar on Monday.

The dollar index — which measures the American currency against the yen, the pound, the Canadian dollar, the Swedish krona, the Swiss franc and the euro — was last trading marginally higher, above the 106 mark. The dollar index is at its highest level in nearly six months.

The value of the US dollar against a basket of six peers is inversely proportional to the value of the rupee. That is, if the value of the greenback rises, the value of the rupee depreciates, and vice versa.

Crude oil benchmarks slipped on concern about the escalating tensions in the Middle East. At the last count, Brent crude futures were trading 0.3% lower at $89.82 per barrel. WTI futures, too, were trading lower at $85.12 per barrel.

The rupee breached the 80 mark against the US dollar for the first time on July 19, 2022, and has since hit a series of lows.

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US Dollar gets costlier to borrow in China in new sign of Yuan woes

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The premium to borrow dollars in China’s local markets has jumped over the past month, another example of the resurgent US currency’s global reach and persistent headwinds facing the yuan.

China’s overnight interbank dollar lending rate hit a record 5.47% on March 29 after a steady climb, before easing to 5.42% Thursday, Bloomberg-compiled data show. That has pushed its gap with the US secured overnight financing rate, a global benchmark, to the widest since July twice in the past two weeks.

The tightening supply of the US currency in China has coincided with the dollar’s global rebound this year as a series of upbeat economic data weakened the case for the Federal Reserve to cut interest rates. If the trend persists, Beijing may have to resort to a familiar tool to ease dollar liquidity as well as pressure on the yuan.

“The gap hinting at an imbalance between supply and demand for dollar liquidity points to pressure on the yuan,” said Zhaopeng Xing, senior strategist at Australia & New Zealand Banking Group. “There is a chance that the PBOC might unleash some dollar liquidity via cutting the foreign exchange reserve requirement ratio.”

Despite the nation’s $3.2 trillion foreign reserves, the amount of foreign currencies that Chinese companies and banks can tap is subject to a confluence of factors, including supply from large state-owned lenders.

In a bid to defend its currency, China has slashed the ratio that sets the amount of foreign-currency deposits banks need to hold as reserves three times since 2022, with the last reduction in September.

Since then, China’s central bank has mostly relied on a strong daily reference rate and dollar sales by state lenders acting as its proxy to alleviate pressure on the yuan. After falling below a key support level in late March, the Chinese currency has extended its drop onshore to a five-month low against the greenback.

However, there’s only so much Beijing can do in the face of the dollar’s global strength.

While China might consider more tools to support the yuan, they “can only help to slow depreciation pressure as we have seen in the past and buy time until the broader market forces shift or fundamentals improve at home,” said Fiona Lim, a senior currency strategist at Malayan Banking Bhd. in Singapore.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow