Stability returns to Asian markets, yuan on PBOC intervention

Monday, August 17, 2015

The yuan started the week off on a firm footing as overnight trade offered early signs that intervention from the PBOC was starting to take effect. Following last week’s surprise lowering of the daily onshore renminbi reference rate against the dollar from the central bank, a sharp retreat from global investors saw offshore renminbi lose significant ground against the USD, trading towards 6.5946 at one point last week. However, confidence slowly crept back into Asian markets towards the end of last week as continued support from the PBOC and robust data coming out of the US went a long way to reassure investors. Offshore yuan strengthened for a second straight day, edging towards 6.4368 against the dollar as further weakness against the dollar has abated at least for the meantime. The PBOC have expressed their willingness to adapt and improve on the current yuan pricing methodology offering further transparency as they look for the yuan’s inclusion into the IMF reserve currencies basket. However, moves akin to last week’s surprises may prevent the yuan from achieving global reserve currency status anytime soon.

Yields on ten year German bunds dropped at the beginning of the previous week as concerns regarding China’s currency devaluation saw traders doubt the timeline for an eventual US rates rise, opting instead to return to safe haven assets. Yields on the long term German government bonds hit a low of 0.586% at one stage last week while commodity prices faced substantial downward pressure as worried investors expressed doubts regarding the momentum of global economic recovery. However, calm quickly returned to markets towards the end of the week as stronger data out of the US encouraged risk appetite, sending 10 year German bund yields back towards 0.660% on Friday with activity early this morning seeing yields hover around 0.650% early on.

Spot gold prices trimmed some of their heady gains towards the end of last week, snapping the five day rally that had seen prices for the yellow metal recover from just under $1,084/oz during the first week of the month towards $1,125.58/oz last week. Investors rushed into the perceived safe haven asset as worries regarding the overall health of the global economy saw investors retreat en masse from global equity, commodity and currency markets. However, some of these steep gains were given back towards the end of last week with the precious metal ending the week just above $1,115/oz as both investor confidence and the US dollar stabilised and we could see additional selling pressure in the coming week on any improving risk appetite.

Offshore yuan volatility subsides as calm slowly returns

CNH Curncy Offshore Deliverable 2015 08 17 07 43 10

Gold prices edge lower towards the end of last week

XAU Curncy Gold Spot Oz D 2015 08 17 08 12 34

Events for today

0001

UK

Aug

Rightmove House Price Index

0050

JP

Q2

GDP

1000

EZ

Jun

Trade Balance

1330

US

Aug

NY Fed Manufacturing

1500

US

Aug

NAHB Housing Market Index

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