Views Article – Sharenet Wealth

Asia, Forex

Yuan hovers at 2-wk low, market awaits global central bank monetary decisions

SHANGHAI, July 23 (Reuters) – China’s yuan hovered around two-week lows against the dollar in tepid trade on Tuesday, as investors anxiously await monetary policy decisions by major overseas central banks. Traders said both volatility and trading volumes continued to fall as market participants look for clearer guidance from global currency markets. Half-day volume stood at $10.131 billion after posting the slowest trading session since Feb.1 on Monday. Trading volume was low in early February as investors were celebrating the Lunar New Year holiday. Prior to the market opening on Tuesday, the People’s Bank of China (PBOC) set the midpoint rate at 6.8818 per dollar, 59 pips or 0.09 percent weaker than the previous fix of 6.8759. In the spot market, onshore yuan opened at 6.8819 per dollar and eased to a low of 6.8848 at one point, the weakest level since July 10. As of midday, it was changing hands at 6.8822, only 5 pips weaker than the previous late session close. Traders are awaiting a European Central Bank policy meeting later this week and a U.S. Federal Reserve decision next week to gauge the impact on major currencies. ECB President Mario Draghi is expected to signal a rate cut in September to keep inflation expectations on track, while markets have already priced in a 25-basis-point cut from the Fed. The options market reflected similar views. Implied volatility in yuan options in both onshore and offshore markets ,, which gauges investors’ expectations for swings in the dollar against the yuan, continued to fall across key tenors. “Reports of the U.S. and China resuming trade negotiations next week are positive for risk sentiment, but escalating tension in the Middle East pushing oil higher are negative. We anticipate wait-and-watch sentiment taking hold of the markets ahead of the ECB meeting this week and the Fed meeting next week,” economists at ING said in a note. As spot yuan approaches the key 6.9 per dollar level, several traders said the market is becoming increasingly unwilling to test the lows as they were afraid the central bank may step in to prop up the currency. South China Morning Post, citing sources, reported late on Monday that a U.S. delegation led by trade representative Robert Lighthizer and Treasury Secretary Steven Mnuchin are set to visit China next week for first face-to-face talks since the G20 summit in Japan last month. Yuan trade was not affected by central bank liquidity injections early in the day. As expected, the PBOC offered fresh medium-term loans to banks in a continued effort to direct more affordable financing to struggling smaller firms. Many market watchers expect the PBOC will trim one or more of its short-term policy rates in early August, if the Fed cuts rates as expected. The global dollar index rose to 97.425 at midday from the previous close of 97.257. The offshore yuan was trading at 6.8828 per dollar as of midday. The yuan market at 0406 GMT: ONSHORE SPOT: Item Current Previous Change PBOC midpoint 6.8818 6.8759 -0.09% Spot yuan 6.8822 6.8817 -0.01% Divergence from 0.01% midpoint* Spot change YTD -0.13% Spot change since 2005 20.26% revaluation Key indexes: Item Current Previous Change Thomson 93.64 93.6 0.0 Reuters/HKEX CNH index Dollar index 97.425 97.257 0.2 *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 6.8828 -0.01% * Offshore 6.9218 -0.58% 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 Winni Zhou and John Ruwitch; Editing by Kim Coghill)

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