Views Article – Sharenet Wealth

Asia, Forex

Yuan falls to 1-1/2-month low as Fed signals spur bounce for dollar

SHANGHAI, Aug 1 (Reuters) – China’s yuan weakened to a 1-1/2-month low against the dollar on Thursday, reflecting a bounce in the greenback following signals from U.S. Federal Reserve Chair Jerome Powell that its benchmark rate cut is not the start of an easing cycle. The dollar rose to two-year highs against a basket of currencies after Powell’s remarks following the Fed’s first rate cut since 2008. China’s central bank kept its main policy rates on hold, opting not to move in the Fed’s wake. The dollar’s strength piled pressure on the official guidance rate and spot yuan. Prior to market opening, the People’s Bank of China set the midpoint rate at 6.8938 per dollar, 97 pips or 0.14% lower than Wednesday’s fix of 6.8841. The setting was the softest since June 18. In the spot market, onshore spot yuan opened at 6.9150 per dollar, also the weakest since June 18. Although spot yuan recovered some early losses, it remained near mid-June levels and at midday changed hands at 6.9003, or 163 pips weaker than Wednesday’s late session close. Analysts and traders said the market stopped testing lows after both onshore and offshore yuan weakened past 6.91. Some market participants speculated state-owned banks might step in to prevent the local unit from sinking further but no such activity was spotted. Ken Cheung, senior Asian FX strategist at Mizuho Bank in Hong Kong, said the market will watch the PBOC’s the Friday official guidance rate for any sign it is unwilling to see further yuan weakness, as policymakers prioritise stability. “In addition to concern over RMB depreciation overshooting and capital outflow pressure, the RMB stability is critical to keep the China-U.S. trade talks underway,” he added. U.S. and Chinese negotiators ended a brief round of trade talks on Wednesday with little sign of progress, and agreed to meet again in September, prolonging an uneasy truce in the trade war between the world’s two largest economies. Zhu Chaoping, global market strategist at JPMorgan Asset Management in Shanghai, said if dollar index keeps rising, the yuan will “face some downside pressure, but the size will be limited as trade and inflows under the capital account are relatively balanced now.” Trade frictions are piling pressure on the yuan, but if negotiations goes well, that will “provide great support” for the currency, Zhu said. The global dollar index rose to 98.819 from the previous close of 98.516. The offshore yuan was trading at 6.9089 per dollar as of midday. The yuan market at 0345 GMT: ONSHORE SPOT: Item Current Previous Change PBOC midpoint 6.8938 6.8841 -0.14% Spot yuan 6.9003 6.884 -0.24% Divergence from 0.09% midpoint* Spot change YTD -0.40% Spot change since 2005 19.94% revaluation Key indexes: Item Current Previous Change Thomson 94.09 93.95 0.2 Reuters/HKEX CNH index Dollar index 98.819 98.516 0.3 *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 6.9089 -0.12% * Offshore 6.95 -0.81% 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 Andrew Galbraith; Editing by Richard Borsuk)

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