IN late July, growing expectations for a US Federal Reserve rate cut and a Bank of Japan rate hike triggered a large-scale unwinding of global carry trade. While Asian currencies like the Indonesian rupiah and Malaysian ringgit outperformed the US dollar in August, strengthening by almost 5%, the yuan lagged behind, gaining only about 1.2%.

The yuan’s failure to capitalise on the unwinding of carry trade can be attributed to two key factors: the stable fixing rate maintained by Chinese officials and exporters’ low willingness to sell foreign currency.