1. Chinese Renminbi weakens; here is why

Chinese Renminbi weakens; here is why

The Chinese Renminbi edged lower against the dollar as it resumed trading on Monday after an extended holiday weekend, pressured by a much weaker midpoint set by the central bank in response to the dollar's rebound during the market closure.

By: | Published: June 13, 2016 12:57 PM
China's renminbi Traders said investors are cautious ahead of the U.S. Federal Reserve policy review later this week as they await clues to when the Fed might next hike rates, with markets pricing out a tightening at the June meeting. (Reuters)

The Chinese Renminbi edged lower against the dollar as it resumed trading on Monday after an extended holiday weekend, pressured by a much weaker midpoint set by the central bank in response to the dollar’s rebound during the market closure.

Traders said investors are cautious ahead of the U.S. Federal Reserve policy review later this week as they await clues to when the Fed might next hike rates, with markets pricing out a tightening at the June meeting. “A July hike is still possible,” said a dealer at a Chinese commercial bank in Shanghai. “So we are focusing on their tone regarding a July hike from the meeting.”

The New York-based index provider MSCI will decide on June 14 whether to allow yuan-denominated shares – or A shares traded in mainland China – into its widely used Emerging Markets Index. “I expect the inclusion of A shares is going to alleviate yuan’s long term depreciation pressure as capital inflows increase and the demand for the Chinese currency rises,” said a trader at another Chinese commercial bank.

However, inclusion in the MSCI benchmark is far from certain, according to people familiar with the matter.

The People’s Bank of China set the midpoint rate at 6.5805 per dollar prior to market open, 0.32 percent weaker than the previous fix of 6.5593 last Wednesday. The market was closed on Thursday and Friday for public holiday.

The yuan has been particularly hit, with famous international investors like George Soros publicly arguing that the currency is set to decline further.

The world’s second-largest economy grew 6.9 percent in 2015, its weakest in a quarter of a century, as activity was weighed down by sluggish demand at home and abroad, massive industrial overcapacity, cooling investment and a weak property market.

China’s yuan trade system to open branches in London, New York

China’s state-owned currency marketplace said on Sunday it was preparing to open branches in London and New York as part of efforts to promote the yuan’s global status.

The China Foreign Exchange Trade System (CFETS), a subsidiary of China’s central bank, said in a statement that by expanding its network offshore, it aims to serve more overseas institutions and become a “main trading platform and pricing center” for the yuan globally.

China has been gradually loosening its capital controls to allow more foreign participation in its onshore yuan market. Beijing is also fostering offshore yuan centers to promote international use of the Chinese currency.

CFETS provides an electronic bidding system for the yuan against foreign currencies.

It also offers cross-rate trading, as well as RMB interbank lending and bond trading. Yuan-based trading on CFETS totalled 618.12 trillion yuan ($94.24 trillion)in 2015, according to official Xinhua News Agency.

The CFETS said that it would further strengthen cooperation with overseas trading platforms, and aim to eventually provide trading services 24 hours a day, seven days a week.

The market platform extended its trading hours for China’s onshore yuan this year to end trading at 11:30 p.m. local time (1530 GMT) from 4:30 p.m. previously.

“CFETS is willing to provide comprehensive service and support to British institutions who participate in China’s inter-bank market, and strengthen cooperation with them as Chinese companies go offshore,” Sun Jie, executive vice president of CFETS, told an event in Shanghai.

The event, focused on the topic of yuan’s internationalization, was attended by Chinese and British regulators, as well as financial institutions.

Britain and China have been working hard in recent years to strengthen their economic relationship, despite strong differences due to Britain’s criticism of China’s human rights record. Chinese President Xi Jinping paid a state visit to Britain last October to seal what both call a “golden time” in relations.

Xavier Rolet, CEO of the London Stock Exchange Group , told the same event on Sunday that London is now the world’s biggest offshore yuan center after Hong Kong.

LSE is working with the Shanghai Stock Exchange to launch a cross-border investment scheme to link the British and Chinese stock markets.

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