Monday , November 29 2021

China puts the yuan correction stronger than expected


On Monday, world indices fell almost in unison as a result of the escalation in the trade war.

Perhaps the most important event was that the offshore yuan fell to below 7 against the dollar, which could mean the Chinese would depreciate the currency as a counterweight to Trump's tariff imports.

The mood on the exchanges did not help that the US authorities simply label China as a currency manipulator.

Still, the S&P 500 index futures are up on Tuesday morning.

According to Nordea Markets, this is because the Chinese authorities have determined the correction of the yuan coast to be slightly higher than expected today at 6 9683. This creates some hope that China will not use the currency in conflict with the US. There is also a message from the Chinese authorities.

In addition, the Chinese central bank PBOC has announced that it will sell RMB bonds in Hong Kong for 30 billion yuan, equivalent to $ 4.3 billion. The sale will take place on August 14 and will draw liquidity out of the markets, boosting demand for the yuan, writes DNB Markets.

DNB Markets also wrote that after yesterday's weakening of many parallels with the weakening of the yuan in 2015, when capital outflows weakened China's foreign exchange reserves by $ 500 billion. The fear is related to the debt of Chinese companies. That debt has doubled from 2015 to $ 730 billion, according to Bloomberg. This year alone, Chinese companies have borrowed $ 130 billion.

For heavy Chinese debt companies, the weakening of the yuan will be a significant risk. These are factors that indicate that Chinese authorities will not actively use the exchange rate in the trade war with the United States, writes DNB Markets.

USDCNY is around 7.04 on Tuesday morning. EURNOK is 9.98 while the crown is trading at 8.91.

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