Yuan gains against dollar in light of ‘sound economic fundamentals’

The People’s Bank of China sets reference point against the greenback at 6.8934, 152 basis points or 0.2 per cent stronger than Monday

PUBLISHED : Tuesday, 13 December, 2016, 12:32pm
UPDATED : Tuesday, 13 December, 2016, 10:34pm

Onshore yuan traded stronger on Tuesday morning after the Chinese authorities said the currency has to meet certain conditions to maintain its stability, supported by sound economic fundamentals.

The National Bureau of Statistics spokesman Mao Shengyong said at a briefing today in Beijing that the yuan was weakening against dollar mainly in light of likely US Federal Reserve rate rises, but that it remains stable against a basket of currencies.

Onshore yuan in Shanghai reversed its two-day decline to trade at 6.9006 to the US dollar by 10.55 am, 0.06 per cent or 39 points stronger than on Monday. Offshore yuan in Hong Kong traded at 6.9281 to the US dollar , 0.08 per cent, or 54 points weaker than Monday.

The People’s Bank of China on Tuesday set the yuan reference point against the US dollar at 6.8934, 152 basis points or 0.2 per cent stronger than on Monday. Traders are allowed to trade up to 2 per cent either side of the reference point for the day.

“The underlying movements of the Chinese yuan are very much reflective of current global reflationary trade and broader moves in the US dollar,” said Stephen Innes, senior trader at Oanda. “As we near the year end there will be a gradual erosion of liquidity as participation will drop off.”

Local traders will be watching interest-rate-sensitive stocks amid expectations that the Fed will increase interest rates by 25 basis points during its December policy board meeting, which ends on Wednesday. Ten-year US Treasuries traded as high as 2.53 per cent early Monday, hitting a 17-month high, but it retreated slightly to 2.46 per cent on Tuesday morning.

“The final US dollar move of the year will follow quickly on the heels of the Fed meeting, as traders will be keenly monitoring for signs of a dovish or hawkish tilt,” said Innes.

A hawkish lean in the rhetoric could drive both US yields and the US dollar higher, given just how cautious this sitting Fed has been in the past
Stephen Innes, senior trader, Oanda

“A hawkish lean in the rhetoric could drive both US yields and the US dollar higher, given just how cautious this sitting Fed has been in the past.

“My best view is that they will err on the side of caution and wait until the much-ballyhooed US fiscal spending becomes policy, before adjusting the dot plots,” he added.

Chinese official data showed that China’s retail sales grew 10.8 on year in November, accelerating from a 10 per cent expansion in October, while fixed-asset investment was up 8.3 per cent in the first 11 months of the year. Industrial production for the month was up 6.2 per cent on year, beating expectations of a 6.1 per cent expansion, according to a Bloomberg survey.

In other currency trading, the pound was flat, trading at US$1.2677 on Tuesday morning while the euro weakened 0.03 per cent to US$1.0631.

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