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 onshore Yuan fell to its lowest level against the U.S. Dollar in nearly 8 years on Tuesday.
- Chinese local governments introduce additional measures to curb the soaring housing prices.
- The National Development and Reform Commission approved a series of projects in the effort of boosting private investment.
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Yuan Rates
- The onshore Yuan fell to its lowest level against the U.S. Dollar in nearly 8 years on Tuesday amid the continued Dollar strength, with the USD/CNY hitting 6.8640. Yuan’s drop followed the PBOC setting the daily reference rate to the weakest level since 2008: In the Asian morning session, the Yuan fix was lowered by -204 pips or -0.30% to 6.8495. The Central Bank has guided the Yuan to weaken against the Dollar for eight consecutive trading days.
We discussed that with external forces and internal tolerance, the Yuan will likely continue to devalue against the Dollar. On Tuesday, the offshore Yuan extended losses against its U.S. counterpart as well, with the USD/CNH touching the new record high of 6.8767 in the early portion of the New York session.
USD/CNY 1-Hour
Prepared by Renee Mu.
Our Currency Analyst Michael Boutros, who specializes in technical analysis, gave out the setup for the USD/CNY in the near term. The next key resistance levels are 6.8900 (the December 2008 high) and 6.9311 (the 361.80% extension of January 2014 low - April 2014 high - October 2014 Low).
USD/CNY 1-Week
Prepared by Michael Boutros
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 users monthly.
- Chinese local governments introduce additional measures to curb the soaring housing prices. On Tuesday, Shenzhen government, raised the minimum down payment for first-home purchases to 30%; the minimum down payment for second-home or more purchases was increased to 70%. In Wuhan, a major tier-two city, citizens have been banned to purchase more than two homes. Last week, in Hangzhou, another tier-two city, mortgage issuance has been tightened and the minimum down payment has been heightened as well.
- China’s fiscal income in October increased +5.9% to 1.536 trillion Yuan on an annualized basis; fiscal expenditure dropped -11.3% to 1.182 trillion Yuan. According to Shenwan Hongyuan Securities, the central government may face increasing pressure on income from reduced real estate taxes due to recent tightened regulations. Over the following two months, the imbalance between income and expenditure may get worse and therefore, the government will need to either increase the deficit ratio or increase revenue from other sources.
China Finance Information: a finance online media administrated by Xinhua Agency.
- China’s Development and Reform Commission approved a new railway project worth 64 billion Yuan. This is the ninth transportation infrastructure project that received a green light from the regulator. The total investment of the newly approved projects in November exceeded 260 billion Yuan. These projects provide opportunities for Chinese private companies to spend their excessive cash. The growth of Chinese private investment dropped to 2.1% in the first seven months of 2016 from a peak level of 28.9% in 2012. The gauge started to improve in September and October but still remained at low rate, below 3.0%; investors are in short of investment opportunities rather than funds. Within such context, the introduction of national infrastructure projects may help to support the growth of private investment.
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