Forex

Exclusive-China asks some banks to reduce or delay dollar buying -sources

Published

1 year ago

August 1, 2023

Exclusive-China asks some banks to reduce or delay dollar buying -sources

SHANGHAI/BEIJING (Reuters) – China’s currency regulators are asking some commercial banks to reduce or postpone their purchases of U.S. dollars in order to slow the yuan’s depreciation, two people with direct knowledge of the matter said.

The informal instruction, or the so-called window guidance, is the latest in a series of steps taken by authorities this year to bolster a currency that has been hit by China’s faltering post-pandemic economic recovery and rising yields for the U.S. dollar and other major currencies.

One source said regulators were emphatic banks should hold off dollar purchases under their proprietary trading accounts due to the “recent yuan depreciation”.

The People’s Bank of China (PBOC) did not immediately respond to a Reuters’ request for comments, while the State Administration of Foreign Exchange (SAFE) told Reuters that exchange rate expectations were stable and it will push for a ‘risk-neutral’ mentality’ at companies and financial institutions.

“The yuan exchange rate expectations are stable, and the foreign exchange market has the foundation to meet authentic and compliant FX needs,” SAFE said in response to a Reuters query.

It reiterated it will keep the yuan basically stable at reasonable and balanced levels.

The tightly managed yuan hit an eight-month low in July, and has lost 3.6% against the dollar since the start of the year to rank as one of Asia’s worst performing currencies. [CNY/]

China’s authorities have pledged to let market factors dictate the yuan’s moves, but their concern evident last month when the policy-making Politburo made a rare reference to the need for currency stability.

The window guidance “suggested that the central bank maintained its stance to support the yuan,” said Ken Cheung, chief Asian FX strategist at Mizuho Bank in Hong Kong. “It also showed that the PBOC has ample tools to defend the currency,” he said.

Keeping non-urgent dollar demand at bay could relieve some of the immediate pressure on the yuan, the sources said.

A central bank-led self-regulatory body had done something similar in 2021, asking banks to cap the size of their proprietary trading accounts to counter volatility in the yuan.

So far, monetary authorities have only tinkered with some rules, such as by allowing companies to borrow more overseas and setting firmer-than-expected daily yuan benchmarks, alongside some yuan-buying by state-owned banks.

“The PBOC is demonstrating firmness with its consistently firmer-than-expected yuan fixings,”said Alvin Tan, head of Asia FX strategy at RBC Capital Markets.

Tan however expected the yuan later this month would re-test July’s trough of 7.25, as the dollar climbs and “investors lose their optimism about China’s economy turning around decisively.”

FLOWS SLOW

Investors were excited by the Politburo’s talk of changes to real estate policy and more measures to boost demand in the economy. But that excitement soon faded, as domestic and foreign investors said they would wait for substantive action before putting more money into China.

Analysts at Goldman Sachs (NYSE:) said in a recent note that while authorities could slow the yuan’s depreciation, there were significant headwinds that would keep it weak.

Foremost among those were the fragility of the debt-laden property sector, and the divergence in monetary policies as China feels the need to keep yields low and supportive of growth.

Investors clamouring to see the government deliver economic support measures sooner have been disappointed so far, and it shows in the weak performance of the country’s stock markets.

The Shanghai stock and blue-chip CSI 300 index are not only lagging regional peers, but also global stocks markets.

Foreign investors’ net purchases of domestic A-share stocks stands at around 230 billion yuan ($32.09 billion), and inflows virtually stalled after the economy lost its post-pandemic bounce.

Overseas institutional investors have also sold huge amounts of yuan bonds.

Largely due to outbound tourism and logistics, China’s services trade deficit more than doubled to $102.1 billion in the January-June period, adding to pressure on the yuan.

There was also a seasonal factor too, as overseas-listed Chinese companies usually need more foreign exchange in the summer to pay dividends to shareholders.

($1 = 7.1673 )

Forex

Asia FX rises as rate cut dents dollar; yen firms as BOJ holds course

Published

22 hours ago

September 20, 2024

Investing.com– Most Asian currencies firmed on Friday, while the dollar nursed losses after the Federal Reserve cut rates by a wide margin and kicked off an easing cycle.

The Japanese yen was among the better performers, strengthening after the Bank of Japan held interest rates and said it expected steady increases in inflation and economic growth.

The Chinese yuan also firmed after the People’s Bank of China kept its benchmark rates unchanged, ducking some expectations that it would cut rates to further support the economy.

Yen firm as BOJ holds rates, flags higher inflation

The Japanese yen firmed on Friday, with the pair falling 0.2% to 142.28 yen.

The BOJ in a unanimous decision, and said it expected inflation and economic growth to steadily increase.

While the central bank did not provide any overtly hawkish cues, its forecast of higher inflation tied into expectations that the BOJ will raise interest rates further. A slew of policymakers had signaled that rates will rise further in the coming months, especially as inflation picks up.

The BOJ decision and forecast came just hours after data showed inflation rose to a 10-month high in August, as increased wages pushed up private consumption.

While the yen was nursing weekly losses, it still remained close to its strongest levels for 2024, hit earlier in the week. Expectations of higher interest rates are likely to underpin the yen in the coming months.

Dollar weak after rate cut cheer offsets less dovish Fed signals

The and both fell slightly in Asian trade, extending overnight declines as markets looked to lower U.S. interest rates.

The Fed and announced the start of an easing cycle, which could see rates fall by as much as 125 bps by the year-end.

But Fed Chair Powell offered a less dovish outlook for medium-to-long term rates, stating that the central bank’s neutral rate will be much higher than seen in the past. His comments limited overall losses in the dollar, and had also seen the greenback appreciate in the immediate aftermath of the Fed decision on Wednesday.

Chinese yuan at 16-mth high as PBOC holds rates

The Chinese yuan firmed on Friday, with the pair falling 0.3% to its lowest level since May 2023.

Strength in the yuan came as the PBOC kept its benchmark steady, ducking some expectations that it would cut rates further to stimulate the economy.

The PBOC’s decision came even as a raft of recent economic indicators showed sustained weakness in China.

But media reports said the PBOC was instructing local banks to buy dollars and limit overall strength in the yuan, given that a stronger yuan also weighs on Chinese exports.

Broader Asian currencies firmed after the Fed’s decision. The Australian dollar’s pair rose 0.2% and was close to an eight-month high.

The South Korean won’s pair was an outlier, rising 0.2%, while the Singapore dollar’s pair fell 0.1%.

The Indian rupee’s pair fell 0.1%, pulling back further from record highs hit earlier this year.

Forex

Stay long on the yen amid rate hikes, improving growth- BCA

Published

22 hours ago

September 20, 2024

Investing.com– BCA Research said bets on a stronger Japanese yen were becoming more entrenched amid attractive valuations in local assets, the prospect of more interest rate hikes and an improving Japanese economy.

The yen saw a stellar recovery over the past two months, as a hawkish Bank of Japan, a weaker dollar and an unwinding carry trade pushed the currency to 2024 peaks. The pair had fallen as low as 139 yen in recent weeks.

BCA Research said in a recent note that the yen was a “high-conviction” buy, and that interest rates and global economic conditions were likely to favor the currency in the coming months.

BCA expects the BOJ to this week. But a “dovish hold” is an opportunity to accumulate more yen, while an unexpected rate hike is set to further boost the currency.

The research firm said the Japanese economy remained resilient, with increases in local wages helping spruce up private consumption.

With the Federal Reserve beginning an easing cycle, and with the BOJ likely to hike interest rates further, BCA sees interest rate differentials still moving in favor of the yen in the long term- more so if the global economy enters a recession.

BCA expects Japanese inflation to rise further in the coming months, tieing into the BOJ’s forecasts and giving the central bank more headroom to raise interest rates. The central bank hiked rates twice so far this year, ending years of easy monetary policy on expectations of an uptick in private consumption and inflation.

While the BOJ is expected to keep rates on hold in the near-term, especially with a looming leadership change in the Japanese government, it is still expected to keep raising rates by end-2024 and going into 2025. BCA said an interest rate hike will “not hurt Japan.”

On Japanese equities, however, BCA was less enthusiastic, rating them as “structurally neutral.” The firm cited yen strength as a headwind, and saw no immediate positive developments in ongoing corporate governance and structural reforms.

Forex

Dollar slips in choppy trading as traders grapple with Fed’s giant rate cut

Published

22 hours ago

September 20, 2024

(Adds missing “cuts” in first bullet, no other changes to text)

By Chibuike Oguh and Stefano Rebaudo

NEW YORK (Reuters) – The U.S. dollar slipped in choppy trading on Wednesday as markets grappled with the supersized 50 basis point interest rate cut, as well as the switch to an easing monetary policy stance delivered by the Federal Reserve.

Investor expectations had largely shifted towards a dovish outcome in the days leading up to the Fed’s move on Wednesday, with money markets pricing in around a 65% chance of a 50 basis point (bp) cut. But economists polled by Reuters were leaning towards a 25 bp cut.

“The interesting thing is the half point cut, which was pretty much unexpected or at least only half and half yesterday, has not really given the dollar extra damage – which is quite surprising,” said Joseph Trevisani, senior analyst at FXStreet in New York.

The , which measures the greenback against a basket of six peers, was down 0.38% to 100.64 after reversing gains made in early trading. It slid to its lowest in more than a year of 100.21 in the previous session.

The euro strengthened 0.4% to $1.1163. Against the yen, the dollar was 0.33% higher at 142.73 as markets anticipate that the Bank of Japan will leave interest rates unchanged on Friday.

The dollar weakened 0.08% to 0.847 against the Swiss franc and dropped 0.34% to 7.070 versus the offshore .

“What it’s really doing I think is giving permission, if you will, for the other central banks around the world, some of whom have started to cut rates already, to go further with their rate cuts,” Trevisani said.

Money markets priced in 72 bps of additional rate cuts in 2024 and 192 bps by September 2025.

The U.S. Treasury yield curve, which measures the gap between yields on two- and and seen as an indicator of economic expectations, steepened and hit its highest since June 2022. It was last at a positive 13.4 basis points, indicating more upcoming rate cuts.

Initial claims for state unemployment benefits dropped unexpectedly to 12,000 last week, according to Labor Department data on Thursday, suggesting labor market growth.

Fed policymakers on Wednesday projected the benchmark interest rate would fall by another half of a percentage point by the end of this year, a full percentage point next year and half of a percentage point in 2026.

“The initial interpretation of the decision was that it was dovish and while it was basically even odds that it was going to happen, overall, on the surface, it’s still a dovish move,” said Eugene Epstein, head of trading & structured products North America at Moneycorp in Boston.

“Everything reversed basically by the end of the day, so you can make the argument as a bit of buy the rumour, sell the fact. A lot of dovishness was already priced in.”

The pound hit its highest since March 2022 versus the dollar after the Bank of England’s Monetary Policy Committee (MPC) voted 8-1 to keep rates on hold. Sterling was up 0.5% against the greenback at $1.3278 after reaching as high as $1.3314.

The Australian and New Zealand dollars drew support from domestic data surprises. Australian employment exceeded forecasts for a third straight month in August.

The was up 0.77% to $0.6815.

The , meanwhile, traded 0.58% higher at $0.6244, after data showed the New Zealand economy contracted by 0.2% in the second quarter.

Currency bid prices at 19

September 07:17 p.m. GMT

Description RIC Last U.S. Close Previous Session Pct Change YTD Pct High Bid Low Bid

Dollar index 100.62 101.02 -0.39% -0.74% 101.47 100.51

Euro/Dollar 1.1162 1.1118 0.4% 1.13% $1.1179 $1.1069

Dollar/Yen 142.61 142.3 0.22% 1.11% 143.875 141.885

Euro/Yen 1.1162 158.18 0.64% 2.29% 159.96 157.79

Dollar/Swiss 0.8469 0.8463 0.06% 0.62% 0.8515 0.845

Sterling/Dollar 1.3276 1.3214 0.51% 4.37% $1.3314 $1.3155

Dollar/Canadian 1.3559 1.3606 -0.34% 2.29% 1.3648 1.3534