China's Yuan Reverses Course, Rises Against Dollar

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

China's Yuan Reverses Course, Rises Against Dollar

The Shanghai bourse hit more than two-year lows on Monday, and the yuan fell amid jitters ahead of a July 6 deadline when the United States is set to impose tariffs on $34 billion worth of goods from China, the epicenter of a heated trade dispute between Washington and major economies that has convulsed financial markets. US tariffs on $34 billion of Chinese products are expected to take effect on July 6, with China set to retaliate with duties of its own on the same value of American goods. Short covering rallies should not be confused with trend reversals and provided traders continue to view escalating trade tensions will reduce the USA trade deficit thereby benefiting the dollar, gold will continue to remain out of favour. It's lost about 4.6 percent of its value against the dollar since June 14.

Using standard language to describe the stance on the currency, Yi said the central bank will "keep the yuan exchange rate basically stable at reasonable and balanced level".

Cross-border capital flows were under control, he added.

Thankfully for regional risk, the PBoC engaged the Yuan airbrake yesterday afternoon and at least for the time being, with the help of Chinese state-owned banks who were seen selling dollars to prop up the Chinese currency, is restoring a sense of calm in regional markets.

The currency hit to an eleventh month low today after it fell almost 1% against the U.S. dollar in early trading, and recovered to gain 0.3%.

Investors are awaiting the publication on Thursday of minutes from the Federal Reserve's June meeting, and Friday's USA jobs data, for validation of policymakers' forecasts for two more rate hikes this year.

The dollar was down 0.2 percent to the yen at 111.35 while the euro traded up 0.1 percent at $1.1665 against the euro.

"We think the latest developments go in line with our view that Lopez Obrador will be more pragmatic than some domestic market participants expect", said Tania Escobedo, New York-based Latam FX Strategist at RBC Capital Markets.

That helped MSCI's world index to rise 0.25 percent, inching further off 2-1/2 month lows hit last week. China's purchasing manager index readings for June released on Saturday showed a gauge of export orders shrinking, suggesting the trade war is already weighing on growth.

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.

On the back of the force majeure in Libya and the supply outages in Canada the markets are staggering tight over the short run, and despite suggestions of more supplies coming to market, traders continue to buy dips as increased barrels may only act to prevent a more rapid increase in prices given the global economies insatiable demand for oil.

The Mexican peso rose sharply on Tuesday after Andres Manuel Lopez Obrador, the newly elected president, sought to soothe investors - magnifying a global bounce in emerging market assets.

"We think there is space for a rally of Mexican peso in the transition period, as local retail investors that have been overweight cash and USA dollar should start shifting back to peso given the opportunity cost in yield".

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