Published: Thu, July 05, 2018
Economy | By

WRAPUP 4-China's yuan gains on PBOC's calming words, stock markets unconvinced

WRAPUP 4-China's yuan gains on PBOC's calming words, stock markets unconvinced

The Chinese currency's downturn comes ahead of July 6, when United States tariffs on $34 billion worth of Chinese goods are to kick in.

Shanghai shed 0.2 percent and Singapore lost 0.5 percent, while Tokyo ended the morning marginally lower after fluctuating through the morning.

The 3 percent drop in the yuan against the dollar over the past two weeks is in part a retracement of its outperformance from February to mid-June, the Morgan Stanley economists said.

"The market remains supported by a production outage in Libya and the overhang from recent USA. data which suggest U.S. supplies are running very tight", said Stephen Innes, head of Asia-Pacific trade at OANDA.

China's economic fundamentals remained sound and financial risks were largely under control, Yi said. The yen gained 0.2 percent versus the dollar to 110.39, supported by its safe haven status. "If the trade-weighted CNY index were to reverse all the divergence with the dollar from February to mid-June, USDCNY could depreciate another 3 percent or more, to 6.8-6.9", they wrote, using the ticker for the onshore yuan.

The yuan was last traded at 6.6960 per dollar.

Hong Kong's markets were closed on Monday for a public holiday to mark the 21st anniversary of the former British colony's return to Chinese rule.

"A weaker currency would, at most, be a shield, safeguarding wider damage from a trade war and the hurdles faced by Chinese companies' operating in the US", it said.

Officials in China, the epicenter of the global trade row, have warned the United States that the tit-for-tat tariffs on each others' goods will ultimately prove detrimental for American businesses and jobs.

Short-covering rallies should not be confused with trend reversals, and provided traders continue to view escalating trade tensions will reduce the U.S. trade deficit, thereby benefiting the dollar, gold will continue to remain out of favour.

"The big driver behind US resilience is that tech has been strong", said Rory McPherson, head of investment strategy at asset manager Psigma.

The peso firmed 2.6 percent overnight, by far the biggest gainer among Latin American currencies, as positive sentiment on Mexico helped magnify an emerging markets rally. -China trade tensions may pose a risk.

Shenzhen-listed BOE's revenue grew 36 percent year on year to 93.8 billion yuan (US$14.4 billion) in 2017.

The Chinese central bank set the Yuan reference rate at 6.6157 on Monday (vs Friday's fix of 6.616), snapping eight straight days of the lower fix.

Support: 6.6263 (session high), 6.6046 (previous day's low), 6.60 (psychological support).

While the focus this week is mainly on the hundreds of billions worth of goods targeted by China-US tariffs, Trump has also taken aim at the European Union and Canada, which have both announced retaliatory measures, adding to global trade war warnings.

Oil prices climbed after Libya declared force majeure on some of its supplies, with Brent crude rising 0.8 percent to $77.93 per barrel and West Texas Intermediate (WTI) crude was up 1.1 percent to $74.77 a barrel.

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