Monday, Jun 27, 2016 9:40 am -07:00
by Renee Mu, Currency Analyst
This daily digest focuses on market sentiment, new developments in China’s foreign exchange policy, changes in financial market regulations and Chinese-language economic coverage in order to keep DailyFX readers up-to-date on news typically covered only in Chinese-language sources.
- The PBOC fixed the onshore Yuan rate 599 pips weaker to the USD-move on Monday after the Brexit result.
- China calls for ‘a smooth transition’ for the UK and a more united EU.
- Chinese Premier, Li Keqiang, said that China will maintain the managed-floating exchange rate regime despite global turbulence.
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Hexun News: Chinese leading online media of financial news.
- On June 27th, the PBOC fixed the onshore Yuan 599 pips weaker against the US Dollar to 6.6375 following the Brexit decision; the lowest rate on CNH since December 2010. As of 9:40 am EDT, the onshore Yuan (USD/CNY) moved to 6.6480, while the offshore Yuan (USD/CNH) moved to 6.6789, the lowest in five and half months.
Also, the Central Bank fixed the Yuan 6,705 pips stronger against the Pound to 8.9194 on Monday, while the onshore GBP/CNY dropped to 8.7840 and the offshore GBP/CNH fell to 8.8358. The Euro continued losses as well; the PBOC fixed the Yuan by 1,250 pips stronger against the euro to 7.3184. On the other hand, the Japanese Yen has seen appreciation due to safe-haven drives, and the PBOC correspondingly fixed the onshore 100JPY/CNY 2317 pips stronger.
- China’s Premier, Li Keqiang said on Monday that despite the global uncertainty as well as market fluctuations, China will maintain the managed-floating exchange rate regime based on market supply and demand with adjustments in reference around a basket of currencies. He reiterated that China’s fundamentals have eliminated the possibility of long-term Yuan devaluation; China has the ability to maintain Yuan stability within a reasonable range.
- The spokesman of China’s Foreign Affairs commented on the Brexit decision and the potential impact to the China-UK relationship. The spokesman said that China respects the British people’s decision and hopes for a smooth transition for the UK after the Brexit result. China would like to continue to cooperate with the UK and maintain a good relationship with the UK. In terms of speculation on more countries leaving the EU, the spokesman said that China always supports the European integration process and a united EU. Also, China is confident in the outlook of the China-EU relationship.
- China’s Central Bank increased liquidity on Monday in the effort of coping with global turbulence. The Central Bank issued 270 billion yuan of 7-day reverse repos on the day with an interest rate of 2.25%, a new high over the past four months. After deducting the 170 billion yuan of reverse repos maturing on the day, the net liquidity added on June 27th was 100 billion Yuan. Also, the total amount of reverse repos to mature this week will hit 660 billion yuan. Thus, it is expected that the PBOC will continue to add liquidity towards the end of the week.
Sina News: China’s most important online media source, similar to CNN in the US. They also own a Chinese version of Twitter, called Weibo, with around 200 million active usersmonthly.
- Hong Kong Stock Exchange said that they will start the interface test for the Shenzhen-Hong Kong Stock Connect (SHSC) beginning on June 27th. This is considered the last step before the system is to be launched officially. Due to this announcement, Chinese local institutions forecast that the new system could be introduced as early as July, although it may take additional one or two months for the system to be fully operational. If the quota issued to the SHSC is 300 billion yuan, the same as the quota to Shanghai-Hong Kong Stock Connect, and the utilization rate is 20-40%, it is expected that the SHSC will bring in 60 to 120 billion yuan of funds to the mainland market from Hong Kong.
Chinaforex News: a news agency administrated by SAFE
- The PBOC approved the direct Chinese Yuan/Korean Won trading in China’s interbank market on June 24th. This is seen as a major step that China and Korea made to promote bilateral trade. On June 27th, Bank of China and Worri Bank completed the first direct Yuan/Won transaction in the interbank market. The deal on the direct trading between the two currencies may have greater impact on Yuan’s exchange rate. Currently, South Korea is the fifth largest trading partner to China, but the Korean Won has not yet included in the CFETS Yuan Index, which is a trade-weighted index. Thus, improving the formation mechanism of the Yuan/Won pair could increase the odds of the Won to be included in the CFETS Yuan Index.
Written by Renee Mu, DailyFX Research Team