Yuan gains, China stocks grind after attempt to soothe markets
Yuan gains, China stocks grind after attempt to soothe markets
Gold and yuan
05 July, 2018, 23:58
China'syuan rebounded for a second day on Wednesday as the currency took a breather from its sharp depreciation in recent weeks, although bearish sentiment lingered as the USA prepares to implement tariffs on US$34 billion of Chinese imports on July 6.
Despite reassurances from the PBoC governor not to use the yuan as a weapon in any trade dispute, indeed the markets remain very bearish China, and well over and above trade tensions, as waning growth momentum has contributed to diverging economic indicators versus the United States suggesting Tuesday's interventions could be little more than a short-term reprieve.
After falling around 0.8% against the dollar early on Tuesday, the yuan recouped its losses in afternoon trading, moving into positive territory.
The question is how much further, and how quickly, the yuan might fall.
"We think the latest developments go in line with our view that Lopez Obrador will be more pragmatic than some domestic market participants expect", said Tania Escobedo, New York-based Latam FX Strategist at RBC Capital Markets, adding there was space "for a rally" in the peso.
The euro last traded at $1.1650, after shedding 0.45 percent overnight.
Elsewhere in currency markets, the euro, which had been pressured by political uncertainty in Germany, pared losses after Chancellor Angela Merkel's conservatives settled a row over migration that threatened to topple her governing coalition after interior minister Horst Seehofer dropped his threat to quit.
On commodity markets, copper edged higher on Tuesday but was still near a seven-month low reached in the previous session as the trade tensions raised concerns about demand. Gains of around 1 percent in tech firms such as Microsoft and Apple offset concerns about trade and its impact on growth. Financial stocks led declines, with the CSI financial sub-index.CSI300FS off 2.1 percent. They are seen delivering another set of robust quarterly earnings.
Trump told the World Trade Organization on Monday that "we'll be doing something" if the United States is not treated properly, just hours after the European Union said that USA automotive tariffs would hurt its own vehicle industry and prompt retaliation.
"The recent intensification of global trade tensions imply the probability of trade conflict has risen to levels that could result in significant pain in financial markets and a sizable drop in output and employment", Deutsche Bank wrote.
Currently, the currency pair is trading at 6.6330 - up 0.24 percent on the day, but well below the high of 6.6390 seen on Friday.
But those most exposed to trade such as the Australian dollar and emerging currencies remain under pressure - the Aussie, considered a liquid proxy for China-related risk, was close to 1-1/2-year lows against the greenback AUD=.
The market was caught in the well oversold territory after the PBoC, for the time being, stemmed the relentless United States dollar rally after avowing to keep the RMB exchange rate stable. Its governor cited "the direction of global trade policy in the United States" as an uncertainty.
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