The Yuan's exchange rate hit after the People's Bank of China (PBoC) lowered several key interest rates.

Today, China's Yuan exchange rate (August 15) fell to its weakest level in the past nine months. When writing this news during the early New York session, the USD/CNY pair is still hovering near the highest level of 7.2888. The cause for this is that the People's Bank of China (PBoC) has cut several of its key interest rates. Additionally, some of China's economic data also missed previous estimates.

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PBoC suddenly announced a reduction in the interest rate for its one-year medium-term lending facility by 15 basis points from 2.65% to 2.5%. Furthermore, the central bank lowered the 7-Day Reverse Repo Rate by 10 basis points to just 1.8%.

These various policies are part of an effort to rejuvenate China's economic growth. However, the market perceives them as concerning signs of a slowdown. Moreover, this morning's retail sales and industrial production data from China indicated that the wheels of the economy were further impeded at the beginning of Q3 2023.

"China's surprise move spooked risk assets as investors grow more concerned about China's growth outlook," said Scotiabank's Osborne.

"The USD's failure to get a broader lift from the weaker risk backdrop this morning might suggest that investors feel they have adequate exposure to the USD for now," Osborne added.

Osborne further noted that the USD's inability to secure more widespread backing amid the morning's weaker risk environment could indicate investors' perception of having sufficient USD exposure.

This surprise dragged down the AUD/USD exchange rate. However, the disturbance didn't drive a rally in the US dollar across major pairs in general. The US Dollar Index (DXY) was observed to be trading sideways in the 102.90 range, while GBP/USD and EUR/USD were showing signs of recovery.

Reuters reported that Chinese banks had initiated the sale of US Dollars to support the Yuan's exchange rate. Unfortunately, these efforts have been unable to reverse the current trend of Yuan depreciation. The Yuan's exchange rate is still weighed down by negative sentiment from news about financial issues affecting several large companies in China.