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China's Market News: Offshore Yuan Drops to a Record Low - What's Next?

China's Market News: Offshore Yuan Drops to a Record Low - What's Next?

Renee Mu, Currency Analyst

This daily digest focuses on Yuan rates, major Chinese economic data, market sentiment, new developments in China’s foreign exchange policies, changes in financial market regulations, as well as market news typically available only in Chinese-language sources.

- The USD/CNH hit above 6.7850 on Monday, setting a new record low level for the offshore Yuan.

- The Yuan weakened against a basket of currencies last week, leaving reduced pressure on Dollar/Yuan rates.

- China’s banking regulator strengthens supervision on banks’ wealth management products invested in real estates.

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Yuan Rates

- The offshore Yuan broke the record low of 6.7850 seen in September 2010 on Monday, with the USD/CNH touching 6.7879 during the early portion of the New York session.

The PBOC weakened the Yuan by -132 pips or -0.195% against the U.S. Dollar to 6.7690 in the Asian session. Within one hour following the release of the reference rate, the offshore Yuan dipped -0.14% against the Dollar, with the USD/CNH just 1 pips away from the September-2010 low. During the same span of time, the onshore Yuan lost -0.14% to the Dollar as well, with the USD/CNY touching 6.7747, the lowest level for the onshore Yuan in six years. As the PBOC’s tolerance grows, the Yuan may hit new lows in both onshore and offshore markets over the following periods.

USD/CNH 1-hour

China's Market News: Offshore Yuan Drops to a Record Low - What's Next?

Prepared by Renee Mu.

The next key level for the USD/CNH is 6.8108, the 200% retracement of the decline from the July high. Also, according to our Currency Strategist Michael Boutros who is specialized in technical levels, the offshore Yuan pair may find some near-term resistance around 6.7793.

USD/CNH 1-Day

China's Market News: Offshore Yuan Drops to a Record Low - What's Next?

Prepared by Renee Mu.

In terms of the Yuan against a currency basket, all three Yuan indexes dropped over the last week. The CFETS Yuan Index, BIS Yuan Index and SDR Yuan Index fell -0.34%, -0.33% and -0.09% respectively to 94.30, 95.01 and 95.77 last Friday from a week ago. Yuan’s weakness against a basket of currencies may reduce the imminent pressure on Yuan rates against the U.S. Dollar coming from a need of re-balancing the basket.

China's Market News: Offshore Yuan Drops to a Record Low - What's Next?

Data downloaded from Bloomberg; chart prepared by Renee Mu.

Market News

Sina News: China’s most important online media source, similar to CNN in the US. They also own a Chinese version of Twitter, called Weibo, with around 200 million active usersmonthly.

- China’s government bond futures dropped significantly on Monday. The 10-year government bond future (T1612) fell -0.32% to 101.605, the largest daily decline in two months. The 5-year government bond future (TF1612) dropped as well, down -0.19% to 101.65. The yields of government bond futures, which have an inverse relationship with bond prices, picked up as a consequence. Last Friday, the yield of 10-year government bond fell to 2.635%, the lowest level since 2006, while a shorter-term rate, the interest rate of 7-day reverse repos soared to 2.910% amid tightened near-term liquidity.

Hexun News: Chinese leading online media of financial news.

- China Banking Regulatory Commission, the banking regulator, announced to tighten regulations on real-estate trusts and banks’ wealth management products (WMP) in the effort to curb credit to the property sector last Friday. In the first half of 2016, 13.06% of funds from WMP, worth 2.09 trillion Yuan, has entered the real estate sector, according to a report issued by China Central Depository & Clearing. Also, 47.1% of new lending issued by banks in September has flown into the property market. The flood of credit has been driving up the housing prices in tier-one and tier-two cities, increasing the risk of price bubbles.

China Finance Information: a finance online media administrated by Xinhua Agency.

- The Communist Party of China (CPC) will host the Sixth Plenary Session of the 18th CPC National Congress from October 24th to 27th. Xinhua News, the Chinese government’s official news agency, issued English commentary on October 23rd regarding this key event: CPC leadership key to China’s success.

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

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