News & Analysis at your fingertips.

We use a range of cookies to give you the best possible browsing experience. By continuing to use this website, you agree to our use of cookies.
You can learn more about our cookie policy here, or by following the link at the bottom of any page on our site.

0

Notifications

Notifications below are based on filters which can be adjusted via Economic and Webinar Calendar pages.

Live Webinar

Live Webinar Events

0

Economic Calendar

Economic Calendar Events

0
Free Trading Guides
EUR/USD
Mixed
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
Oil - US Crude
Mixed
Wall Street
Bearish
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
Gold
Bearish
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
GBP/USD
Mixed
USD/JPY
Mixed
More View more
Real Time News
  • IG Client Sentiment Update: Our data shows the vast majority of traders in Ripple are long at 97.38%, while traders in NZD/USD are at opposite extremes with 64.38%. See the summary chart below and full details and charts on DailyFX: https://www.dailyfx.com/sentiment https://t.co/FK6WQOsr0r
  • Speaker Pelosi says she has a major difference of opinion with White House administration on relief - BBG
  • Commodities Update: As of 16:00, these are your best and worst performers based on the London trading schedule: Silver: 1.85% Gold: 0.79% Oil - US Crude: -1.53% View the performance of all markets via https://www.dailyfx.com/forex-rates#commodities https://t.co/nJC51ehlu4
  • The price of gold bounces back from a fresh monthly low ($1860) on the back of US Dollar weakness. Get your $XAUUSD market update from @DavidJSong here:https://t.co/kFDANiwAm1 https://t.co/yPgmAR4P8Y
  • Forex Update: As of 16:00, these are your best and worst performers based on the London trading schedule: 🇯🇵JPY: 0.08% 🇬🇧GBP: 0.08% 🇨🇦CAD: 0.07% 🇨🇭CHF: -0.14% 🇳🇿NZD: -0.14% 🇪🇺EUR: -0.23% View the performance of all markets via https://www.dailyfx.com/forex-rates#currencies https://t.co/86MpRGrAms
  • Daily virus cases rise to 31,084 in Italy, new record - BBG
  • "Exquisitely Focused" Great conversation and takeaways on a call this morning with @GuyAdami and the @DailyFX, @IG_US, @Nadex teams!
  • Indices Update: As of 16:00, these are your best and worst performers based on the London trading schedule: France 40: 0.52% FTSE 100: 0.13% Germany 30: -0.27% Wall Street: -1.23% US 500: -1.60% View the performance of all markets via https://www.dailyfx.com/forex-rates#indices https://t.co/f17Gw2Mdnr
  • RT @DeItaone: $DIS SAYS 11,350 UNION WORKERS TO BE LAID OFF DEC. 31
  • US Treasury Yields: 2-Year: 0.151% 3-Year: 0.194% 5-Year: 0.386% 7-Year: 0.635% 10-Year: 0.862% 30-Year: 1.642% $TNX
Yuan at Risk on Capital Outflows, FOMC

Yuan at Risk on Capital Outflows, FOMC

2016-06-10 22:06:00
Renee Mu, Currency Analyst
Share:
Yuan at Risk on Capital Outflows, FOMC

Fundamental Forecast for the Yuan:Bearish

Chinese Media Warns of Post-Holiday Selloff

China’s Market News: US, China Meet for Yuan Rate Discussions

What Are the Traits of Successful Traders?

The offshore Yuan rate (USD/CNH) and the onshore Yuan rate (USD/CNY) moved in opposite directions this week. The offshore rate dropped on Monday following a weaker-than-expected daily fix set by the PBOC, while the onshore rate strengthened. The offshore Yuan extended losses against the Dollar on Thursday and Friday when the onshore market closed for a three-day national holiday, and thus no fixings were released. Upon the open next week, the risk in capital flows out of Chinese equity markets as well as the country at-large has significantly increased. Also, major themes including the Federal Reserve’s June meeting and MSCI’s decision on Chinese A-shares inclusion are expected to bring elevated volatility to the Chinese currency.

China’s May trade numbers released the past week not only revealed disappointing exports, but also raised concerns around surging capital outflows through over-invoicing. Mainland China’s imports from Hong Kong hit $2.48 billion in May, increasing by +242.6% from a year ago. In fact, over the past six months, the mainland’s imports from Hong Kong have already seen significant increases. The year-over-year growth in imports jumped from +64.5% in December 2015 to +203.5% in April 2016. However, according to Hong Kong’s official data, the region’s exports to mainland dropped -5.8% on average over the same period. This discrepancy indicates that Chinese importers may have paid higher prices than the actual value of the imported goods or services, which is called over-invoicing. China’s foreign reserves dropped by $27.93 billion to $3.19174 trillion in May, the lowest since December 2011. The continued pressure of capital outflows may drag the Yuan lower.

The risk in Chinese equity markets has also been increasing: ’Big’ Chinese shareholders have significantly cut holdings over the past 6 trading days, which may lead to a broader selloff after the market reopens on June 13th. This market sentiment could drive capitals flows out of the country again, as was seen in January, and this could hurt Yuan rates. Also of note, MSCI will make the decision on whether to include Chinese A-shares in its emerging market index on June 14, which is highly likely to bring elevated volatility to the Chinese equity markets. There were mixed messages over the past week that may affect the odds of the inclusion: On one hand, China issued 250 billion yuan of RQFII quota to US institutional investors. This provides channels for foreign investors to purchase Chinese stocks and thus is a positive move. On the other hand, the ‘calming down’ commentary published on the newspaper administrated by the PBOC and the cancelation of the MSCI press conference on decision day dampened the outlook for inclusion.

If the answer from MSCI is yes, it may not necessarily drive the Chinese stock prices higher in the short-term. Empirical studies have shown that after MSCI included stocks from Taiwan and Korea, the stock prices in the two regions showed limited increases; instead, the correlation between the two markets and the global trends were highly improved. This could be the case for China as well. However, if MSCI rejects China’s application, the impact could be very bad. Chinese equities are lacking of momentum amid the L-shaped economic growth and the nation-wide production cut. Since May, MSCI inclusion has become a major theme to support Chinese stocks, although the Shanghai Composite Index has yet to break the key resistance level of 2,940. Without the prospect of MSCI inclusion, the Shanghai Composite is likely to drop below 2,800; the major support level since May. Yuan rates, especially the less-controlled offshore rate, may plunge as a consequence.

Last but not least, the Federal Reserve’s next policy meeting will be held next week. As the Chinese currency become more market-driven, China’s most important counterpart, the US, has contributed to some of the largest moves to the Yuan pairs, such as the recent bout of Dollar weakness being driven by a disappointing non-farm payrolls print. Although the June rate hike is less likely, any clue that hints a July rate hike could largely affect the Dollar pairs, including the Dollar-Yuan. Other key US data, such as the May Industrial Production and the Jobless Claims, could affect the Dollar-Yuan pairs as well. China’s domestic Industrial Production and Retail Sales gauges may have limited impact on Yuan pairs unless we see a significant miss, as it has already been well-known that China’s manufacturing industries would have to take a quite long time (at least two years) to recover.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

DISCLOSURES