China’s yuan rebounds against the dollar, but analysts caution currency’s strength may be short-lived
The Chinese yuan rebounded slightly on Monday, coinciding with an upbeat session on mainland equity markets after key US indexes surged to records last week, but analysts caution that the currency could resume its downward path in the medium term.
The onshore yuan in Shanghai trade at 6.6872 per US dollar at 10.30 am, edging higher by 0.01 per cent from Friday’s close. The currency last Wednesday at one point hit the lowest level in six years at 6.6947.
The offshore yuan in Hong Kong was down to 6.7053 in early trade before bouncing back to 6.6996 at 10.30am.
Jasper Lo, chief executive of King International, said the yuan bounce would be short-lived.
mainland economy is still weak and we should not have a high expectation on the second quarter GDP announcement this week. The offshore yuan is likely to fall further to 6.75 or even down to 6.80 in the medium term,” he said.
Stephen Innes, senior trader at OANDA Asia Pacific, also said the GDP announcement on Friday would be the key for the outlook of the yuan.
“China’s first quarter GDP came in near expectations of 6.7 per cent. If the Q2 GDP comes in below expectations of 6.6 per cent, the market will aggressively position for near-term monetary policy easing with additional fallout weighing on the RMB complex,” Innes said.
“Local attention will focus on Wednesday’s China trade balance and, as there has been a soft trade performance across the region this year due to slowing global demand, the data will provide the markets with a snapshot of the mainland’s economy’s current economic health. Based on prior PMI sub-readings, the export sector is expected to have contracted in June,” Innes said.
The People’s Bank of China on Monday set the yuan reference point against the US dollar at 6.6843, stronger by 0.015 per cent or 10 basis points from Friday. Traders are allowed to trade up to 2 per cent either side of the reference point for the day.
The Hong Kong dollar traded at 7.7575 per US dollar at 10.30am on Monday morning, which is now on the strong end of the currency peg, and just shy of year’s high at 7.7503 on January 4.
The Japanese yen softened by 0.14 per cent, with the US dollar buying 100.65 yen. This came after Japanese Prime Minister Shinzo Abe’s coalition won the Upper House election on Sunday.
“Despite the show of support for the LDP party headed by Prime Minister Abe, there was minimal effect on USD/JPY at today’s open as the USD/JPY downtrend remains thoroughly entrenched,” Innes said.
The sterling pound bounced back slightly by 0.04 per cent on Monday morning to trade at US$1.2951 level. The British currency fell to a fresh 31-year low last week of US$1.2801. The currency so far is down 12 per cent since the Brexit referendum on June 23, when the British electorate voted to leave the European Union.