After a long weekend of Chinese New Year celebrations, investors are rubbing their hands together in anticipation as China’s central bank delivered the news which resulted in the Yuan recovering by the most in three months. The 7 day holiday period hit a record of 3.05 billion Yuan showing great potential in personal spending. Although China’s industrial structure is changing with manufacturing industries slowing, the growth in the Entertainment Industry is strong and this is expected to continue through 2016 at a high rate.
This was the largest one day spike since a peg to the dollar was scrapped over 10 years ago.
People’s Bank of China (PBOC) Governor Zhou Xiaochuan said in an interview published in Caixin magazine over the weekend, “China’s balance of payments position is good, capital outflows are normal and the exchange rate is basically stable against a basket of currencies.”
With an appreciation of 1.25% which is the highest since July 2005 to around 6.4951 in the late afternoon Australian time, the onshore unit later overtook it, to 6.4915 to the US dollar, its highest level this year.
The People’s Bank of China increased its daily fixing against the greenback by 0.3 percent to 6.5118 to the US dollar, which is the most since November 2015.
As a result of the movement in China on Monday the Australian dollar firmed , bolstered by a record trade surplus for China and a revaluation of the Yuan against a weakened greenback as the country’s central bank resumed its daily fix of the currency.
By the late afternoon AUD was fetching US71.67¢, an increase from approximately US71.15¢ in early trade and as opposed to approximately US71¢ at the same time on Friday.
The net result was a stronger trade and current account balance, a position which usually supports currency stability.
Considering Zhou’s comments in conjunction with stronger fixing is it apparent that in the near term the PBOC have a close focus on stabilizing the Yuan.
Exports were estimated by economists to reach a growth of around 3.5 percent year on year (YOY); however the result was in fact a drop of 6.6 percent.
Imports results were a far cry from the forecasted 1.8 percent growth, with the end result contracting 14.4% YOY
On the flip side the trade balance in Yuan terms was anticipated to be 389.01b and in fact was 406.20b.
Almost 20 minutes after this Chinese data in USD terms was released the currency continued its decline fractionally.
Back in Australia and reflecting on the Reserve Bank of Australia (RBA) Governor Glenn Stevens public statement last week whereby he confirmed if necessary he will allow additional easing – it is yet to be seen if this will be the case considering with China being Australia’s main trading partner the traders focus will no doubt now be on speculation around a near-term RBA interest rate cut which will be decided at the 01 March meeting.