Will China’s Ren­minbi ring the alarm bell?

Financial Mirror (Cyprus) - - WORLD - By Hus­sein Sayed, Chief Mar­ket Strate­gist at FXTM

The slight gains in U.S. equities ear­lier this week failed to in­flu­ence Asian in­vestors as trade fears and the Ren­minbi’s slide con­tin­ued to drive risk aver­sion.

This sharp de­pre­ci­a­tion in the Chi­nese cur­rency is wor­ry­ing in­vestors. In Au­gust 2015, USDCNY ap­pre­ci­ated from 6.21 to 6.44, a two-day gain of 3.85%. As a re­sult, global stock mar­kets sold off sharply as in­vestors feared the be­gin­ning of a cur­rency war. With trade ten­sions in­creas­ing day by day, Bei­jing might be play­ing this game as a tool in its trade war with the U.S. How­ever, such a strat­egy will be a dou­ble-edged sword as it might also lead to a flight of cap­i­tal which the PBoC is well aware of.

Al­though the Chi­nese cur­rency de­pre­ci­ated 3.23% in June, it didn’t sound quite so alarm­ing, given that the Dol­lar ap­pre­ci­ated against most ma­jor cur­ren­cies in May and June. Go­ing for­ward it’s go­ing to be about the pace and mag­ni­tude of the cur­rency moves that will drive eq­uity mar­kets. CNYUSD traded at 6.70 and will keep a close eye on 6.96, the low­est level reached in Jan­uary 2017.

Cau­tion is war­ranted at this cur­rent stage, as the on­go­ing trade dis­pute moves from an­nounce­ments to im­ple­men­ta­tion. Canada con­firmed last week­end that it had im­posed tar­iffs on U.S. ex­ports worth 16.6 bil­lion CAD, while the U.S. is set to im­pose a 25% tar­iff on up to $34 bil­lion of Chi­nese prod­ucts. Mean­while, there are re­ports that the Euro­pean Com­mis­sion will im­pose tar­iffs on nearly $300 bil­lion on U.S. prod­ucts if Pres­i­dent Trump tar­gets the Euro­pean auto in­dus­try. This sounds like a se­ri­ous trade war.

Ma­jor cur­rency mar­kets were steady early in the week with the Euro, Pound, and Yen trad­ing in nar­row ranges against the dol­lar. The eco­nomic cal­en­dar doesn’t hold tier one data, but it’s worth watch­ing the Eu­ro­zone re­tail sales fig­ures af­ter con­sumer con­fi­dence dipped to its low­est level since last Oc­to­ber and Oil prices are mak­ing an­other at­tempt to reach $80.

Oil bulls seem to have re­turned af­ter Libya sus­pended Oil ex­ports from two key ports. If Libya’s Oil doesn’t re­turn fast to the mar­ket it will be an im­por­tant test to OPEC’s spare ca­pac­ity, es­pe­cially given that out­put from Venezuela and Iran is ex­pected to fall sig­nif­i­cantly in the next cou­ple of months.

Mar­kets Re­port by Forex­time Ltd

Newspapers in English

Newspapers from Cyprus

© PressReader. All rights reserved.