Published: Fri, July 06, 2018
Markets | By Noel Gibbs

China cenbank blames yuan moves on dollar rise, external uncertainty

China cenbank blames yuan moves on dollar rise, external uncertainty

"Notwithstanding the trade war concerns, the broader picture is the USA central bank still remains the most hawkish central bank among its peers and that should support the dollar for now", said Jane Foley, senior currency strategist at Rabobank.

Speculation was rife the central bank in China was intervening in the currency market to staunch losses and prevent a potentially destabilising sell-off in the yuan.

Currency moves were largely limited, however, with a public US holiday in the United States discouraging traders from taking out big positions, not least until there is some clarity about where an escalating trade dispute between the USA and China is headed and whether Europe will be dragged in.

"Recently the foreign exchange market has shown some volatility and we're paying close attention to that", Yi said.

The head of China's central bank says he's closely watching the recent slide in the value of the yuan against the us dollar, but the country's economic fundamentals remain strong. The Hong Kong market remained choppy and was last down 1.9 percent, while the Shanghai bourse edged up 0.05 percent.

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That helped MSCI's world index to rise 0.2 per cent, inching further off recent 2-1/2 month lows. The index closed lower by 0.27 percent at 6,177.80, with consumer stocks and gold producers recording the steepest declines.

Chinese currency and equity markets have been volatile ahead of July 6, when US tariffs on $34 billion worth of Chinese goods are set to kick in.

The euro held up against the dollar after German Chancellor Angela Merkel reached a compromise deal on immigration with her coalition partners, keeping her government intact for now and averting a crisis in Europe's biggest economy.

The dollar fell 0.2 percent against a basket of six major currencies at 94.505 ahead of the U.S. Independence Day holiday, after notching up three consecutive months of gains. Analysts expect China to reciprocate, marking the official start of a trade war. They point to the chaos caused in Chinese and global markets by sharp falls in the currency in 2015 and early 2016.

"But if the market ignores the PBoC and keeps pushing the yuan weaker quickly, the central bank may conduct heavy intervention to send a stronger signal".

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Tech shares have been relatively resilient to trade fears - the New York Stock Exchange's index of 10 tech giants, including China's Alibaba has gained over 30 per cent this year.

Also muddying trade relations between the world's two largest economies was a Chinese court ruling that temporarily barred US chipmaker Micron Technology Inc (MU.O) from selling some of its main products in the world's biggest memory chip market.

China is Australia's major export market and its currency, the Australia dollar, is considered a liquid proxy for China-related risk.

Oil prices bounced back in early Asian trade on Tuesday, with Brent crude rising 0.41 percent to $77.30 per barrel and West Texas Intermediate (WTI) crude was up 0.32 percent to $73.94 a barrel.

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