• Yuan Hits 6.3600 Vs. Dollar
• Trade Data Disappoints
• Risk Sentiment Under Pressure

The Chinese yuan tumbled against the dollar late in Friday’s Asian session, in a move which broke its three-day winning streak.

Concerns over the state of the Chinese economy were heightened by trade data which revealed that both imports and exports slowed sharply in July. The dollar traded at CNY6.3600 around 0830 GMT, higher than Thursday’s close at CNY6.3590, with analysts tipping further upward moves on the way.

Analysts Eye 6.4000- 6.4500 Area

Citing the area of 6.4000-6.4500 CNY for the pair moving forward, Credit Agricole CIB strategist Dariusz Kowalczyk added: "Given the soft patch through which the country is going, we see further downside for the [Chinese] currency in the near term."

Earlier in the week, risk markets rallied off the back of Chinese data which revealed softer inflation rates and growth at a three-year low. Expectation for easing measures to be put in place in the near future spurred on commodity-correlated currencies, with the Australian dollar making a marked ascent up charts.

But the weaker-than-expected trade figures have caused widespread concern, with risk sentiment under now pressure. UBS analyst Paul Donovan said: “China's export numbers came in weaker than expected at just 1 percent y-o-y growth in July. Exports to the Euro area are collapsing (this can not be that much of a surprise), and exports to the US also weakened”.

Risk Sentiment Takes Bashing

The combination of Chinese trade data and depressed HPIC figures from Germany – Europe’s supposed largest economy – point to a downbeat outlook as we move into Q3, with hopes for a rebound dwindling. In order to recover, Donovan advises Asian nations looking closer to home. “The trend is for weaker exports from Asia as a whole (Korea and Taiwan also saw weakness in their export data)”, he said.

“The export led growth model is not likely to function very effectively in a world where trade globalisation stagnates, so Asia must look to domestic demand.”

As a major exporter to China, the Aussie dollar was down 0.5 percent at $1.0518 after the data emerged. This represents its lowest level in over a week.

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The Aussie also retraced gains after the release of the Reserve Bank of Australia's quarterly statement on monetary policy. The RBA upgraded its 2012 outlook for economic growth while making it clear to traders that a strong currency could hamper growth.

Despite the warning, a base level of investor interest is likely to be maintained by the nation’s 3.5 percent interest rates. But as a currency linked extremely closely to the fate of its major trading partner, China, more fluctuations are undoubtedly on the cards.

Sarah Cox, Markets Writer. ForexSpace.com