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China’s Market News: Yuan in the Shadow of Narrowed Yield Spread

China’s Market News: Yuan in the Shadow of Narrowed Yield Spread

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 PBOC strengthened the Yuan against the U.S. Dollar for the first time in more than two weeks.

- Yuan rates still bear downward pressure amid the narrowed gap between U.S. and China 10-year government bond yields.

- Bank of China enters the Yuan futures market in Korea as a market maker and a clearing bank.

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Yuan Rates

- The PBOC strengthened the Yuan against the U.S. Dollar on Tuesday, the first time in over two weeks: the Yuan was increased by +206 pips or +0.30% to 6.8779. Both the onshore and offshore Yuan rates steadied following the guidance. The USD/CNY was trading around the level of 6.8900, the 2008 high; the USD/CNH found some support along the 2012 trend line.

USD/CNH 1-Hour

Prepared by Renee Mu.

As the U.S. FX markets start to quiet down and prepare for the Thanksgiving holiday, we may continue to see reduced volatility in Dollar/Yuan rates over the next few days.

At the same time, the spread between China and U.S. 10-year government yields has seen significant drops since the U.S. Presidential Election. On November 18th, the spread fell to 55 basis points, the lowest level in 11 months. The narrowed gap between the two yields may put additional capital outflow pressure on China, which could further lower Yuan’s value against its U.S. counterpart. As a result, the steadiness seen in Yuan rates today (and likely next few days as well due to Thanksgiving) may be short-lived.

Data Downloaded from Bloomberg; chart prepared by Renee Mu.

Market News

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

- Bank of China (BoC) signed a deal with Korea Exchange as the first commercial bank market maker for Yuan futures in Korea and as the local Yuan clearing bank. Korea Exchange introduced Yuan futures trading in October 2015. BoC’s participation in Korean financial markets will further promote Yuan’s use in the region and help to develop an offshore Yuan center in Korea.

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.

- Hong Kong Exchange and Clearing Chief Executive Charles Li said that the Shenzhen Hong Kong Stock Connect was planned to be introduced on a Monday in November, but regulators are still working on the launch; the official notice is likely to be announced in one or two weeks.

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