China central banker says currency slide under observation

A local investor looks at the electronic

China remains at the epicentre of FX markets, and while yesterday's price action was fast and decisively sent USDCNH lower, with market conditions ahead of the 4th of July and Friday NFP, combined with the start of U.S.

By the midday trading break on Monday, the blue chip CSI300 index.CSI300 was down 1.4 percent, while the Shanghai Composite Index.SSEC fell 1.1 percent. The Chinese currency has lost 3.6% in the past one month while two months ago it was up 3.2%.

"We don't expect policymakers to encourage material RMB depreciation", China economists at the bank, led by Robin Xing in Hong Kong, wrote in a July 1 note, referring to the renminbi, the official name of China's currency.

"The market remains supported by a production outage in Libya and the overhang from recent USA. data which suggest U.S. supplies are running very tight", said Stephen Innes, head of Asia-Pacific trade at OANDA.

On Friday, Chinese stocks and the yuan bounced with benchmark share indexes having one of their best days since mid-2016.

The Chinese yuan, on a downward spiral since mid-June, slipped past 6.7 per dollar in early trading on Tuesday for the first time since August 9, 2017 before paring losses on talk of intervention by the Chinese central bank.

"There have been some fluctuations in the foreign exchange market recently", People's Bank of China Governor Yi Wang said in a statement. After the comments, the onshore yuan gained 0.2% to 6.6500 per dollar. At 0542 GMT it was trading at 6.7010. Beijing has said it would retaliate with tariffs on United States products.

Also on Monday, Washington moved to block China Mobile from offering services to the US telecommunications market, recommending its application be rejected because the government-owned firm posed national security risks.

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The global forecast for the Asian markets is soft thanks to continuing concerns over a trade war between the United States and China.

"Both the euro and the dollar benefit because both are seen as safe havens".

The euro last traded at $1.1650, after shedding 0.45 percent overnight.

The dollar last stood at 110.97 yen, giving up gains following sharp falls in Chinese shares.

RBA Governor Philip Lowe said "one uncertainty regarding the global outlook stems from the direction of worldwide trade policy in the United States", cautioning that the recent U.S.

All this should set the stage for Asia markets to open lower, as investors continue to ponder the negative regional impact of trade tension and growing concerns about global growth prospects.

"So if you have all these currencies weakening and the dollar strengthening against other emerging markets currencies as well, it generates a degree of instability in the market simply by virtue of its scale". Its "base case" is for the currency to end the year at 6.6.

Support: 6.6263 (session high), 6.6046 (previous day's low), 6.60 (psychological support).

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