· The offshore yuan pulled back from an all-time low on Tuesday after Beijing appeared to take steps to prevent the currency from weakening further, following a sharp drop that prompted the U.S. government to declare China was manipulating its currency.
China said on Tuesday it was selling yuan-denominated bills in Hong Kong, in a move seen as curtailing short selling of the currency.
On top of that, the People’s Bank of China fixed the daily reference rate for the onshore Chinese yuan at 6.9683, firmer than the expected 6.9871, and below the key 7 rate through which it broke on Monday.
“The recovery in yuan...is triggered by the fixing, which has eased some concern about competitive currency devaluation,” said Masafumi Yamamoto, chief currency strategist at Mizuho Securities in Tokyo.
The offshore yuan was last up by 0.4% at 7.0677 against the dollar after plunging to 7.14 Monday night, the lowest since offshore trading began in 2010.
The onshore yuan opened trade at 7.0699 per dollar, versus its last close at 7.0498.
If the Chinese central bank fixes the rate at or above 7, this will likely be an “indication they are ready for the remnibi weakening phase,” said Stephen Gallo, forex strategist at BMO Capital Markets.
· The small rebound in the Chinese remnibi has shifted investors’ focus away from safe-haven currencies, pushing the Japanese yen and Swiss franc lower.
The yen was last down by 0.6% at 106.56, pulling back from a 16-month high of 105.52 it reached overnight excluding the January flash crash. The franc was 0.2% weaker, bouncing off a 25-month high it reached on Monday.
Elsewhere, the euro was flat at $1.1208 after jumping to an 18-day high against the dollar overnight. The index which tracks the dollar against a basket of six major currencies was also flat at 97.57.
· Monday’s sharp weakening in the Chinese currency came after U.S. President Donald Trump unexpectedly announced fresh tariffs on Beijing last week, and so the yuan move was widely deemed a response from the Chinese side.
“I think this is clearly a retaliation that in the past China has refrained from doing,” Claudio Piron, co-head of Asia rates and foreign exchange strategy at Bank of America Merrill Lynch Global Research, told CNBC’s on Monday.
· After China’s currency weakened beyond a closely watched level on Monday, the country’s central bank set the yuan’s official reference point at stronger than that point on Tuesday.
That important line is at seven yuan per dollar. In Monday’s Asian afternoon trading hours, the onshore currency changed hands at 7.0304 against the dollar, while the offshore yuan traded at 7.0807 against the greenback.
On Tuesday morning, the People’s Bank of China set the yuan fixing at 6.9683. That was stronger than the 6.9736 that had been expected, according to a Reuters estimate.
Still, it was weaker than the 6.9225 parity level from Monday morning — and it’s the weakest since May 20, 2008, according to Reuters.
· US Dollar may rise if Fed’s James Bullard comes off as less-dovish than market expectations
The US Dollar may wobble between commentary from St. Louis Fed President James B. Bullard – whom the markets perceive as dovish – and weak German factory order data and perilous Italian politics. The FOMC board member will be speaking at event in Washington on the outlook of the US economy. The Fed’s most recent policy decision and commentary suggests the central bank remains neutral.
· A big-beat on German Factory Orders data failed to lift the sentiment around the Euro, keeping the EUR/USD pair modestly flat near the 1.12 handle amid trade tensions and Yuan recovery.
From a technical perspective, the pair stalled its recovery momentum near 100-day EMA, which should now act as a key pivotal point for short-term traders. A sustained breakthrough the mentioned barrier is likely to accelerate the up-move towards the 1.1275 supply zone en-route the 1.1300 round figure mark before the pair eventually aims to test its next major resistance near the 1.1330-40 region.
On the flip side, immediate support is now pegged near the 1.1175 horizontal zone, which if broken will indicate the resumption of the prior well-established bearish trend and turn the pair vulnerable to head back towards challenging the 1.1100 round figure mark with some intermediate support near the 1.1130-25 region.
· Despite looming hard Brexit concerns, the GBP/USD pair recovers. Speculations concerning no-confidence motion against the UK PM fail to stop him from supporting no-deal Brexit. Investors may keep an eye over macro news/headlines for fresh direction.
Buyers are on the lookout for the sustained break beyond July-end high of 1.2250 in order to aim for 1.2300. However, an area comprising July 17 low and July 29 high near 1.2382/85 could restrict pair’s further upside. Meanwhile, pair’s break below the latest low surrounding 1.2080 holds the key to a decline towards 1.2000 round-figure.
· The four living former chairs of the Federal Reserve on Monday called for the U.S. central bank to remain free to work independently and without fear of political reprisals in a rare joint public statement.
President Donald Trump has repeatedly railed against the Fed for raising rates four times last year, saying that Chairman Jerome Powell’s monetary policies have held back economic growth. Trump has publicly said he could fire or demote Powell, his own nominee as chair.
The public pressure on the Fed by a U.S. president has been unprecedented, as the institution has traditionally been viewed as independent.
“As former chairs of the board of governors of the Federal Reserve System, we are united in the conviction that the Fed and its chair must be permitted to act independently and in the best interests of the economy, free of short-term political pressures and, in particular, without the threat of removal or demotion of Fed leaders for political reasons,” the four former Fed chairs - Paul Volcker, Alan Greenspan, Ben Bernanke and Janet Yellen -wrote in an opinion essay published in the Wall Street Journal.
· German industrial orders rose far more than expected in June, data showed on Tuesday and the Economy Ministry said the downward trend for this sector of Europe’s biggest economy had slowed noticeably in the second quarter.
Contracts for ‘Made in Germany’ goods were up 2.5% from the previous month, the biggest jump since August 2017, boosted by a big rise in bookings for big-ticket items from non-euro zone countries, the Ministry said. That exceeded the Reuters consensus forecast for a 0.5% increase.
· China threatened countermeasures on Tuesday if the United States deploys intermediate-range, ground-based missiles in Asia and warned U.S. allies of repercussions if they allow such weapons on their territory.
U.S. Defense Secretary Mark Esper said on Saturday he was in favour of placing ground-launched, intermediate-range missiles in the region soon, possibly within months.
Washington formally pulled out last week from the Intermediate-range Nuclear Forces Treaty, a 1987 pact with the former Soviet Union that banned ground-launched nuclear and conventional ballistic and cruise missiles with ranges of 500-5,000 km (310 to 3,400 miles).
· North Korea fired missiles into the sea off its east coast for the fourth time in less than two weeks, the South Korean military said on Tuesday, as Pyongyang protested that joint U.S.-South Korea military drills violated diplomatic agreements.
· India on Monday revoked the special status of Kashmir, the Himalayan region that has long been a flashpoint in ties with neighboring Pakistan, moving to grasp its only Muslim-majority region more tightly.
In the most far-reaching political move in one of the world’s most militarized regions in nearly seven decades, India said it would scrap a constitutional provision that allows the state of Jammu and Kashmir to make its own laws.
Pakistan said it strongly condemned the decision, which is bound to further strain ties between the nuclear-armed rivals.
· Oil prices rose 1% on Tuesday as traders betting on falling prices bought back contracts to lock in profits after declines over the last three sessions due to escalating trade tensions between China and the United States.
Brent prices plunged more than 8% in the three sessions from their close on July 31, with U.S. President Donald Trump vowing to impose new tariffs on Chinese imports, and China making further moves against U.S. agricultural cargoes.
The United States also responded to a decline in the Chinese yuan on Monday by branding the country a currency manipulator.
Brent fell more than 3% on Monday as traders worried the ongoing trade dispute between the world’s two biggest oil buyers would dent demand, helping to prompt Tuesday’s short-covering.
International benchmark Brent crude futures LCOc1 had climbed 58 cents, or 1%, to $60.39 a barrel by 0635 GMT on Tuesday after earlier dipping to their lowest since Jan. 14 at $59.07.
West Texas Intermediate (WTI) crude CLc1 futures rose 59 cents, or 1.1%, to $55.28 per barrel.
Reference: CNBC, Reuters, FXStreet
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