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
Subscribe
Please try again
EUR/USD
Bullish
Oil - US Crude
Mixed
Wall Street
Mixed
Gold
Bullish
GBP/USD
Bearish
USD/JPY
Mixed
More View more
Real Time News
  • It seems the markets are riding high, but risk is always lurking around the corner. Consider your escape plan before you find yourself in collapsing market. What are the top havens for different conditions in 2020? Find out from @JohnKicklighter here: https://t.co/1oeXWEsJkb https://t.co/x8uyOHLtgE
  • The Swiss Franc may continue higher against the US Dollar as technical pressure favors USD/CHF bears..Get your $USDCHF market update from @FxWestwater here:https://t.co/yqJbbhAWiu https://t.co/CaMR0Vqd1m
  • The US Dollar lost ground to most ASEAN currencies as Emerging Market assets climbed despite US economic woes. USD/INR is eyeing third-quarter Indian GDP at the end of the week. Get your market update from @ddubrovskyFX here:https://t.co/urDN2b5Nwd https://t.co/toSDbVZCSi
  • The global stock market can be categorized into specific groups or ‘stock market sectors’. Organizing the vast number of stocks in this way helps traders to view assets in a more manageable way. Get your stock market sectors basics here: https://t.co/5gbiHmY8yl https://t.co/mQ6ty8Yalv
  • The Euro looks poised to continue gaining ground against haven-associated currencies and may reverse higher against the British Pound in the near term. Get your #Euro market update from @DanielGMoss here:https://t.co/oRIHju7ZzK https://t.co/dIEErVzWEY
  • Gold and silver prices have come under significant pressure recently. However, this correction lower could prove short-lived as price analysis hints at a reversal higher. Get your $XAUUSD market update from @DanielGMoss here:https://t.co/K1qL0fsGwy https://t.co/tRfjlN6X22
  • The S&P 500, Dow Jones and crude oil prices have recently made critical advances to the upside. Is retail positioning supporting the case for further upside momentum?https://t.co/rfA2TsBctB https://t.co/SNoOEVLXvA
  • An improving economic backdrop is bolstering crude oil prices and in turn, the Canadian Dollar. Still, the risk-sensitive Australian Dollar continues to move higher. Get your market update from @FxWestwater here:https://t.co/NJ683bZKpe https://t.co/zt3bYddjZ6
  • Gold Price Forecast: Dovish FOMC Could Underpin Bullion Ahead of NFP - https://www.dailyfx.com/forex/fundamental/forecast/weekly/chf/2020/11/27/Gold-Price-Forecast-Dovish-FOMC-Could-Underpin-Bullion-Ahead-of-NFP.html?CHID=9&QPID=917708&utm_source=Twitter&utm_medium=Moss&utm_campaign=twr #Gold #XAUUSD $GOLD $GLD https://t.co/N9ChZOqSdy
  • Forex Update: As of 21:00, these are your best and worst performers based on the London trading schedule: 🇪🇺EUR: 0.42% 🇦🇺AUD: 0.35% 🇳🇿NZD: 0.30% 🇨🇦CAD: 0.20% 🇯🇵JPY: 0.16% 🇬🇧GBP: -0.33% View the performance of all markets via https://www.dailyfx.com/forex-rates#currencies https://t.co/4uyJxc09OH
CNH, HKD Prepared for FOMC with PBOC's Bills, Pending on Escalated Trade War

CNH, HKD Prepared for FOMC with PBOC's Bills, Pending on Escalated Trade War

2018-09-23 02:00:00
Renee Mu, Currency Analyst
Share:
Please add a description for the image.

FUNDAMENTAL FORECAST FOR CNH: Neutral

Chinese Yuan Talking Points:

  • PBOC launched central bank bills in Hong Kong, which is able to support the offshore Yuan (CNH).
  • China vowed not to devalue the Yuan for exports, amid escalated trade battles and military sanctions.
  • Hong Kong Dollar surged on PBOC’s bills and leading banks’ interest rate hikes ahead of FOMC.

How to trade news? Learn with DailyFX Free Trading Guides!

The offshore Chinese Yuan gained against the U.S. Dollar this week after three consecutive losses. Yet, it lost to most of the rest major currencies, except the GBP and the JPY. Looking forward, a primary risk for the USD/CNH will be from the September FOMC meeting; China’s Central Bank (PBOC) has introduced a measure that could help to buffer the effect. In addition, the US-China trade war will continue to be in the spotlight and the conflicts between the two countries seem to have expanded to a broader scope.

PBOC LAUNCHES OFFSHORE YUAN BILLS TO PREPARE FOR POTENTIAL SELLING

PBOC announced on Thursday that it will issue central bank bills, a tool that the regulator could use to manage Yuan liquidity, in its largest offshore market - Hong Kong. The move indicates that China’s Central Bank is seeking to increase influence on the offshore Yuan, beyond the use of existing tools, such as the daily reference rate. With central bank bills, the regulator can impact the offshore Yuan liquidity directly.

Also, the timing of this release sends a signal that the regulator may want to continue to stabilize the Yuan. Next week, the U.S. Federal Reserve will release the September rate decision, which is widely expected to hike 0.25%, with a 100% probability based on the Fed funds rate. More importantly, the Fed will update the dot-plot outlook on interest rates, revealing members’ view on the future rates. While the USD/CNH is close to critical psychological levels, market sentiment driven by Fed could lead to a breakout.

What the Chinese regulator is trying to avoid is massive selling driven by market sentiment, which could emerge following the Fed rate decision. Besides, China’s onshore market will be closed for a 7-day holiday from September 29th. During then, no daily Yuan reference rate will be released to guide the market. This limits PBOC’s influence through regular tools, and thus a new measure of the central bank bills will help.

US-CHINA TRADE WAR: NO CURRENCY DEVALUATION BUT MILITARY SANCTIONS?

This week, the trade war has escalated with both US and China launching new tariffs against each other: The US told it would begin to charge tariffs on additional $200 billion Chinese goods from September 24. As a retaliation, China announced to impose tariffs on $60 billion American goods. Then, Trump responded further that the US could kick in tariffs on another $257 billion Chinese products (it was mentioned before as $267 billion).

In the coming days, the two sides seem to resume the trade talks as planned, as no cancellation was reported based on China Commerce Ministry’s press conference on Thursday. However, the prospects of any significant progress will be achieved continue to dim. In terms of the impact, the escalated trade battles will eventually and inevitably hurt the Chinese economy and thus could add bearish pressure on the Yuan. At the same time, China’s Premier Li Keqiang vowed that China will not pursue a currency devaluation policy to stimulus exports.

Besides the trade war, there are rising concerns on the expanded scope of conflicts between the US and China. On Thursday, the US imposed sanctions on China because of Chinese purchases of Russian military equipment. China’s Foreign Affairs Ministry responded with strong words that “the US action has seriously damaged the relations” and it will “have to bear the consequences”.This new conflict could add difficulties for the two to solve the existing trade disputes which are already complicated.

HONG KONG DOLLAR SURGED ON PBOC’S BILLS, BANKS’INTEREST RATE HIKES

Following PBOC’s announcement of launching central bank bills, the Hong Kong Dollar surged as much as +0.6% against the U.S. Dollar on Friday, the largest daily gain in 15-years. The jump also made the USD/HKD depart from the upper limit (lower limit for HKD) of 7.85, under the current pegging exchange rate regime. This largely reduced the pressure on Hong Kong Monetary Authority (HKMA) to defend the pegging system.

USD/HKD 1-Day

CNH, HKD Prepared for FOMC with PBOC's Bills, Pending on Escalated Trade War

Also, Hong Kong’s commercial banks began to increase interest rates ahead of the FOMC meeting. HSBC, one of the three commercial banks with HKMA’s licence to issue banknotes of HKD (basically the money), raised deposit rates on September 20th. This helped to support the HKD as well. The other two authorized banks are Standard Chartered (Hong Kong) and Bank of China (Hong Kong). If these two banks and HKMA raise rates in the coming week, it could further support the HKD.

-- Written by Renee Mu, Currency Analyst with DailyFX

OTHER WEEKLY FUNDAMENTAL FORECAST:

New Zealand Dollar Forecast - Fed, RBNZ Risk Derailing Remarkable New Zealand Dollar Recovery

Japanese Yen Forecast - JPY Bears Eye 113 Level

Oil Forecast – Oil Firms Ahead of Algiers OPEC Meeting That May Set Stage for Q4

British Pound Forecast – Bullish Sentiment Erased by Brexit Impasse

US dollar Forecast – US Dollar May Resume Rising Trend After FOMC Rate Decision

Gold Forecast - Gold Price Headed for a Break, may Turn Lower on Sour Sentiment

Australian Dollar Forecast – Australian Dollar Gains May Be Stymied By Fed Meet, Aftermath

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

DISCLOSURES