Views Article – Sharenet Wealth

Asia, Forex

Yuan firms as traders see resilience in China’s economy

SHANGHAI, July 16 (Reuters) – China’s yuan firmed slightly against the U.S. dollar on Tuesday as traders bet government support measures will put a floor under the slowing economy in coming months. Expectations of a U.S. rate cut later this month also continued to hobble the dollar, while sparking debate over whether China’s central bank will follow suit by lowering one of its key policy rates. In spot trade, the yuan opened at 6.8750 per dollar and was changing hands at 6.8737 at midday. The People’s Bank of China (PBOC) set the midpoint rate at 6.871 per dollar prior to the market open. The yuan has been stuck within a narrow range over the past month, but depreciation fears fueled by the Sino-U.S. trade war are gradually fading as the Fed signals a shift in its policy course. Data on Monday showed China’s economic growth slowed to 6.2% in the second quarter, its weakest pace in at least 27 years. But June activity data beat expectations, with a pick-up in investment in particular suggesting earlier stimulus measures are finally starting to kick in. In a further sign of government support, data on Tuesday showed China’s fiscal spending increased 10.7% in the first six months from a year earlier. “While higher tariffs and trade uncertainty should continue to depress trade and business investment, a rebound in infrastructure investment and resilience in consumption should help stabilize growth in H2,” UBS wrote on Tuesday. UBS maintains its 2019 China GDP forecast of 6.2%, while seeing only “modest additional easing”, a forecast that bodes well for the yuan. Analysts at Nomura, however, urged caution, saying “we see no strong signals that China’s economy bottomed out in June.” Even if second-half activity levels out, a growing number of economists are forecasting growth will drop into the upper 5-percent range in 2020. Pan Gongsheng, deputy governor at the People’s Bank of China, reiterated on Tuesday that China will promote the yuan’s internationalization, and increase foreigners’ confidence in using and holding the Chinese currency. Pan also vowed to ward off market risks in an article published in China Finance, a publication afflicted to China’s central bank. The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 93.58, firmer than the previous day’s 93.55. The global dollar index rose to 96.944 from the previous close of 96.933. The offshore yuan was trading 0.01 percent away from the onshore spot at 6.8733 per dollar. Offshore one-year non-deliverable forwards contracts (NDFs), considered the best available proxy for forward-looking market expectations of the yuan’s value, traded at 6.9055, 0.50 percent away from the midpoint. One-year NDFs are settled against the midpoint, not the spot rate. The yuan market at 4:08AM GMT: ONSHORE SPOT: Item Current Previous Change PBOC midpoint 6.871 6.8677 -0.05% Spot yuan 6.8737 6.8775 0.06% Divergence from 0.04% midpoint* Spot change YTD -0.01% Spot change since 2005 20.41% revaluation Key indexes: Item Current Previous Change Thomson 93.58 93.55 0.0 Reuters/HKEX CNH index Dollar index 96.944 96.933 0.0 *Divergence of the dollar/yuan exchange rate. Negative number indicates that spot yuan is trading stronger than the midpoint. The People’s Bank of China (PBOC) allows the exchange rate to rise or fall 2 percent from official midpoint rate it sets each morning. OFFSHORE CNH MARKET Instrument Current Difference from onshore Offshore spot yuan 6.8733 0.01% * Offshore 6.9055 -0.50% non-deliverable forwards ** *Premium for offshore spot over onshore **Figure reflects difference from PBOC’s official midpoint, since non-deliverable forwards are settled against the midpoint. . (Reporting by Samuel Shen and John Ruwitch; Editing by Kim Coghill)

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