Offshore yuan stability a priority for the PBOC

Tuesday, January 12, 2016

Asian equity markets posted mixed results overnight as Japanese stocks headed lower for the sixth straight session after the long weekend and Chinese mainland stocks pushed tentatively higher. The TOPIX closed over 3% lower, posting its worst ever start to the year, while the Nikkei 225 lost 2.7% as investors continued to question the lasting impact of recent yuan devaluations on equities while market sentiment failed to materially improve. The yen regained some of yesterday’s weakness against the dollar and after snapping a five session run of strength against the greenback on Monday, which saw it trade back towards 118.00 we have seen the Japanese currency revisit the area just below 117.50 as the Chinese central bank stepped up its currency intervention.

The yuan has had a very tumultuous start to the year and yesterday’s session was no exception as the offshore yuan exchange rate gained 1.4% against the dollar with much of the strength came throughout the European session. Activity overnight and early on this morning has seen the offshore yuan exchange rate stabilise around 6.5855 against the dollar with swings either side testing appetite back above 6.6000 and 6.5660. Market participants expect the PBOC to actively step up efforts to support the yuan over the coming weeks and months and if the recent buying up of surplus offshore yuan in Hong Kong is anything to go by we could see additional buying in the near term as policymakers look to close the gap between onshore and offshore renminbi.

Gold struggled to hold onto support above $1,100/oz yesterday as resistance at the 100 day MA capped any intraday gains and investors believed the recent rally from $1,060/oz since the start of the year was overdone. The precious metal closed 0.8% lower, ending the session just above $,1094/oz as the risk off appetite that has dominated trading activity over the past week slowly shows signs of dissipating this week. However, we’re not out of the woods yet as spot prices for the yellow metal have stabilised around $1,096/oz early on after attempting to recover back above $1,100/oz early on.

JPY resumes rally against USD

JPY Curncy Japanese Yen Spot 2016 01 12 07 54 52

Offshore yuan strengthens on PBOC intervention

CNH Curncy Offshore Deliverable 2016 01 12 08 12 26

Gold prices slip back below $1,100/oz

XAU Curncy Gold Spot Oz D 2016 01 12 08 23 32

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Topics: Gold, PBOC, CNH
More from: Kash Kamal