China's yuan gains on PBOC's calming words, stock markets unconvinced

Jermaine Castillo
July 6, 2018

Chinese currency and equity markets have been volatile ahead of July 6, when USA tariffs on $34 billion worth of Chinese goods are set to kick in.

The dollar was down 0.15 percent against a basket of six major currencies at 94.528 ahead of the US Independence Day holiday on Wednesday, after notching up three consecutive months of gains.

The Shanghai Composite Index sank 2.5 per cent, more than wiping out a 2.2 per cent rally on Friday, and extending last month's 8 per cent rout. Up to now, the declines have been about 0.5 percent.

Hong Kong share market closed session lower on Tuesday, 03 July 2018, as trading resumed after a one-day hiatus on Monday to mark the day that the former British colony was returned to China.

On economic news, Hong Kong's value of total retail sales in May, provisionally estimated at HK$40.5 billion, rose 12.9% over the same month in 2017, according to the Census and Statistics Department. "Now, I think, the realization comes in that downside risk could be more significant", Rainer Michael Preiss, executive director at Taurus Wealth Advisors, told CNBC's "Capital Connection".

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Currently, the currency pair is trading at 6.6330 - up 0.24 percent on the day, but well below the high of 6.6390 seen on Friday.

Thankfully for regional risk, the PBoC engaged the yuan airbrake yesterday afternoon, and at least for the time being, with the help of Chinese state-owned banks that were seen selling dollars to prop up the Chinese currency, is restoring a sense of calm in regional markets.

Traders and economists say major state-owned banks sometimes act on behalf of the central bank in the foreign exchange interbank market. Beijing has recently started trading oil in yuan which is seen as an initial step to challenging the dominance of the U.S. dollar.

The Chinese yuan has been sinking to fresh lows versus the dollar.

Fears over a slowdown in the country's economy and the start of a trade war with the United States have been weighing on Chinese shares and the yuan.

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Besides the protein drink, Narongsak said they were given painkillers and antibiotics, which doctors had advised as a precaution. The Tham Luang complex is prone to severe flooding during Thailand's rainy season, which lasts from June to October.

Trump told the World Trade Organization on Monday that "we'll be doing something" if the United States is not treated properly, just hours after the European Union said that USA automotive tariffs would hurt its own vehicle industry and prompt retaliation.

"We think there is space for a rally of Mexican peso in the transition period, as local retail investors that have been overweight cash and USA dollar should start shifting back to peso given the opportunity cost in yield".

Officials in China, the epicenter of the global trade row, have warned the United States that the tit-for-tat tariffs on each others' goods will ultimately prove detrimental for American businesses and jobs.

The euro held up against the dollar after German Chancellor Angela Merkel reached a compromise deal on immigration with her coalition partners, keeping her government intact for now and averting a crisis in Europe's biggest economy.

The pair last traded at C$1.3115, its highest level in 2-1/2 weeks.

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