January 20, 2019

Major Chinese banks ditching USA dollar to prop up domestic currency

06 July 2018, 05:16 | Joann Bryant

China's Yuan Reverses Course, Rises Against Dollar

China's Currency Makes Round Trip as Trade War, Growth Concerns Whipsaw Market

Investors look at an electronic board showing stock information at a brokerage house in Shanghai, China June 20, 2018.

Currency moves were largely limited, however, with a public USA 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 US and China is headed and whether Europe will be dragged in. "And ultimately, unless there's compromise in the trade dispute, the yuan should remain under pressure", said Stephen Innes, regional head of trading at Oanda.

After being one of the outperforming currencies for most of the year, the yuan has become one of the worst performing currencies in the Asian markets. The Chinese government said Tuesday it wanted to keep the yuan stable.

"So if you have all these currencies weakening and the dollar strengthening against other emerging markets currencies as well, it generates a degree of instability in the market simply by virtue of its scale". But the strong dollar "is less of a valid argument" for the yuan's recent declines, according to Tai Hui, chief market strategist at JPMorgan Asset Management in Asia. China and Russian Federation are planning to launch settlements in ruble and yuan, bypassing the dollar and other Western currencies.

"Swap points were falling sharply, as big banks were offering", one of the traders said.

The euro rose against the dollar on Wednesday but the move was limited as concerns ahead Washington's end-of-week deadline to impose tariffs on Chinese imports kept many investors on the sidelines. 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. Beijing promised to retaliate but said it would "absolutely not" fire the first shot in a trade war. In early trade on Tuesday, the spot rate weakened to a low of 6.7204, the lowest since Aug.7, 2017.

The offshore yuan last traded at 6.6168 against the dollar, up 0.8 percent on the day.

The People's Bank of China, which helps guide the yuan by setting a daily trading range, didn't immediately respond to a request for comment.

Asian stocks slipped on Wednesday and European markets also opened lower, underlying investor nervousness.

Elsewhere, the Shanghai composite fell 2.52 percent to finish at 2,775.77, failing to sustain the slight rebound seen in the previous session, while the smaller Shenzhen composite lost 1.58 percent for the day.

In Tokyo, the Nikkei 225 sank in afternoon trade, closing down 2.21 percent, or 492.58 points, at 21,811.93.

The yuan extended losses and has fallen around eight percent since the end of March - and is now at an 11-month low - adding to fears about the mainland as leaders struggle to get a cap on a debt mountain while also supporting growth.

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