• World
  • Columnist
  • Commodities
  • WORLD BUSINESS & ECONOMY
  • Executive Knowledge Series
  • Finance
  • Manufacturing
  • Markets
  • Risk & Governance
  • Small Business
  • Technology, Media & Innovation
  • Comments
  • Business AM WebTV
  • Login

Businessamlive
  • FRONTPAGE
  • FINANCE
    • AllAsset ManagementAuditBankingBondBudgetCapital MarketsC&I LeasingCurrencyDealDebt marketForexFund RaisingFundingGovernmentHedge FundsInsuranceInvestmentInvestorInvestor ServicesMergers & AcquistionsMoney marketTreasury BillsMortgagePensionsPersonal financePonziQuantitative EasingshareTaxationTSAWealth Management
      Finance

      Stringent regulations, business environment forced Stanbic IBTC out of BDC business

      January 15, 2021

      Finance

      Cautious equities trading see gains in Flour Mills, Mobil, Wapco push market cap to ₦21.09trn

      January 15, 2021

      Finance

      CBN issues guidelines for QR codes operation in Nigeria

      January 15, 2021

      Finance

      Global Equities: Positive sentiment buoys global markets’ performance on vaccine rollout, Biden confirmation

      January 13, 2021

  • MARKETS
  • ECONOMY
    • AllAfricaAgricAirportsAmericaAsiaAustraliaBreakthroughDealEuropeForeign InvestmentsforexGlobal marketGovernanceIMFMiddle EastNECANigeriaOutlookRich listSouth AfricaSport BusinessTradeU.KWest AfricaWorld Economic forum
      Technology

      Africa data centre market to outpace $3bn by 2025, says Turner & Townsend

      7 hrs

      Commodities

      Wheat soars as Russia considers export tax

      7 hrs

      WORLD BUSINESS & ECONOMY

      Only 20% of UK financial services professionals believe firms possess ethical commitment

      January 16, 2021

      Frontpage

      Moody’s sees negative 2021 outlook for sub-Saharan Africa, with severe economic challenges

      January 15, 2021

  • COMMODITIES
  • ENERGY
    • AllConferenceElectricityOil and GasPowerRenewable
      Frontpage

      NNPC receives $120.49m crude oil receipt in September  

      18 hrs

      Frontpage

      NNPC moves to rehabilitate downstream infrastructure, openscontract bids

      January 15, 2021

      Companies

      Ardova enters acquisition talks with Enyo as part of expansion drive  

      January 15, 2021

      Oil and Gas

      NNPC reaffirms commitment to OPEC+ agreement   

      January 15, 2021

  • TECHNOLOGY
  • MANUFACTURING
  • ANALYSIS
    • Analyst Insight

      CBN meeting and NSE in focus

      January 18, 2021

      Analyst Insight

      Once again, fiscal stimulus takes centre stage

      January 18, 2021

      Analyst Insight

      Organisations must learn from the WhatsApp story  

      January 18, 2021

      Analyst Insight

      Data privacy maturity model in organisations

      January 11, 2021

Markets

China is using the Yuan to combat risk of a market meltdown

May 19, 20171K views0 comments

China has an insurance policy against a full-scale market meltdown: the daily currency fixing.

With stocks and bonds in retreat amid anxiety over Beijing’s deleveraging campaign, officials have been guiding the yuan higher against the dollar in a move that’s caught market watchers by surprise. After meeting expectations earlier in the year, the reference rate used by the People’s Bank of China to manage the yuan has come in stronger than the forecasts of four banks who regularly track the measure on 25 of the past 32 trading days.

“The PBOC is using the stronger fixings to prevent panic sentiment from spreading to the currency market,” said Xia Le, chief economist at Banco Bilbao Vizcaya Argentaria SA in Hong Kong, referring to the reference rate that’s updated each day. “In the short term, no one can fight against the PBOC when it intervenes through the fixings. Investors will likely become more willing to sell the dollar, pushing the yuan higher from current levels.”

China seems to be trying to find a balance between tackling financial risks while avoiding a wider selloff that undermines faith in the markets and Beijing’s regulatory powers.

Read Also:

  • Taking bull by the horn: How 2020 crises unveiled potentials for…
  • Africa opens world’s largest single market (3)
  • Africa data centre market to outpace $3bn by 2025, says Turner & Townsend
  • Smart home market profits to reach $176bn in 2025, rising by 127%  
  • Nigeria’s forex traders set up platform for live countrywide market…

Policy makers are railing against speculation and stepping up controls on the banking industry, but also boosting injections of cheap cash amid concern over tight liquidity. The yuan is playing a steadying role, too, with foreign investors citing the currency’s stability in the face of spiking bond yields and equity-market whiplash as one of the reasons they’re sanguine about the clampdown.

While China has largely stemmed outflows through tougher capital controls, the PBOC is engineering a stronger yuan to preempt a renewal of those pressures amid the stock- and bond-market gyrations, says Khoon Goh, head of Asia research for Australia & New Zealand Banking Group in Singapore. The onshore yuan reached a three-week high on Wednesday.

Unpredictable Moves

“The authorities likely want to ensure that there is no pick-up in outflows and keeping the yuan stable is one way to ensure this,” said Goh, one of the analysts whose forecasts have been trailing the yuan’s reference rates this month.

Central bank policy stipulates that the yuan is restricted to moves of no more than 2 percent either side of the reference rate. But officials have never divulged exactly how the daily rate is calculated, with banks having to come up with their own models based on what the fixing has done in the past and bits of intelligence from policy makers. Since mid-2016, the reference rate has been very predictable — until now.

The rate has come in stronger than the median of fixing forecasts provided by the four banks — ANZ, Mizuho Bank Ltd., Scotiabank and China Guangfa Bank Co. — every trading day since April 5, according to Bloomberg calculations. The fixing was 0.23 percent higher than the median projection on Friday, the biggest deviation since at least February.

The stronger fixing policy will help lure foreign investors to China’s onshore bond market, said Ken Cheung, a Hong Kong-based currency strategist at Mizuho. Offshore funds are set to get increased access to the mainland debt market via a trading link with Hong Kong.

The fact the yuan is seeing stability against the dollar, but remains weak versus other currencies, suggests the stronger fixing run is a sentiment-boosting move. The PBOC didn’t respond to questions faxed to its press office on Thursday.

Traders have been paring bets on yuan weakness, with odds of a drop beyond 7 per dollar by the end of June at 8 percent, down from 38 percent two months ago, according to options data compiled by Bloomberg. But strategists still see the currency, which traded at 6.8900 per dollar as of 6 p.m. local time on Friday, retreating to 7.05 per dollar by year-end.

Treasury Secretary Steven Mnuchin praised yuan strength on Thursday, saying China’s use of foreign-currency reserves to support the currency benefits American workers. U.S. President Donald Trump backed down on a vow to label the country a currency manipulator after meeting with his Chinese counterpart Xi Jinping in early April.

While ANZ’s Goh says the yuan’s “stronger bias” will likely persist, it will become difficult for the PBOC to maintain as the market starts to price in further interest-rate hikes from the Federal Reserve.

“This is not a fundamental revamp of China’s foreign-exchange policy — the PBOC will want to keep its policy consistent, which is the cornerstone of yuan stability,” said Mizuho’s Cheung. “But as China eases capital curbs to push for internationalization in the second half, the currency will face mild pressures to weaken.”


Courtesy Bloomberg

Share on Facebook Tweet Email
TagsChina Currency Yuan
PreviousJapan government investors tell Toshiba of plan to join chip unit bidding: sources
NextFour car makers settle claims over Takata inflators for $553 million

Leave a comment

- Cancel reply

MARKET DATA

Market Videos

Recent Posts

  • Africa data centre market to outpace $3bn by 2025, says Turner & Townsend
  • Wheat soars as Russia considers export tax
  • Tizeti expands coverage to Edo, introduces low-cost unlimited 4G services
  • NNPC receives $120.49m crude oil receipt in September  
  • Sachet Culture: Fueling consumer buying behaviour or pollution?

World

Africa

Buhari, Okonjo-Iweala congratulate Adesina over reelection as AfDB President

Europe

EU businesses to cut investments in 2020, says EIB report

America

U.S. increases cost of visa application for Nigerians

Africa

Thatcher-Loving Nigeria Candidate Plans to Overhaul Economy

Africa

AfDB scales up industrialization pace on the continent, delivers improved business access to finance, skills, energy

Frontpage posts

0

Cabotage fund hits N72.4bn as FG sets up disbursement c’ttee 

Frontpage January 23, 2020

1
2

Apple’s new iPhone seen to lead to $180 billion in smartphone sales despite lagging behind Android

Frontpage September 2, 2017

3

Nigeria’s central bank governor says monetary policy offers limited tools for economic recovery

Frontpage August 23, 2017

4

CBN makes DisCos’ remittance condition for N600bn disbursement

Frontpage September 11, 2019

5

Investment windows tighten on telecom sector

Frontpage May 5, 2020

SUPPORT

  • Photo Gallery
  • Help Centre
  • About Us
  • Accessibility

LEGAL & PRIVACY

  • Terms & Conditions
  • Privacy
  • Cookies
  • Copyright

SERVICES

  • Conferences & Events
  • Analysts Research
  • Advertising Rate
  • Ebooks

TOOLS

  • Portfolio
  • Newsletters
  • News feed
  • Currency Converter

SUBSCRIBE

Join us to get latest updates on business related news.

[mc4wp_form id="3076"]
  • ABOUT US
  • CONTACT US
  • CAREERS
  • TERMS & CONDITIONS
  • PRIVACY POLICY
Copyright 2017. All rights reserved. BusinessAMLive. A Businessnewscorp Member Company.