Once again the PBoC’s fixing drew all the attention last night as the bank set the reference rate for the renminbi at 6.4010, up 1.1% from yesterday’s fix of 6.3306. Over the last 3 days, the fix rose 4.66%, from 6.1162 to 6.4010 after the People’s Bank of China said it would modify the way the reference rate is set. After this morning fix decision, the central bank released a press briefing in which it explains that “China is implementing the managed floating exchange rate regime based on market demand and supply. The fluctuation of exchange rate is a normal phenomenon, to which, we should take an objective view. In the future, the PBC will strive to further improve market-based formation mechanism of RMB exchange rate, maintain a normal fluctuation of RMB, and keep the exchange rate basically stable at an adaptive and equilibrium level”. The PBoC is therefore letting the market playing a bigger role and the market is saying that the yuan is overvalued. Ironically, the US have been claiming for years that China was maintaining its currency at an artificially low level but now that markets say the yuan is overvalued, it seems now that their demands have worked inwardly against them. However, it is worth noticing that this modification is very timely for China as Beijing is struggling to soften the impacts of a slowing economy.
Asian equity markets are stabilising this morning with the Nikkei gaining 0.99%, the Hang Seng adding 0.59% and the Shanghai Composite rising 0.48%. In New Zealand, business manufacturing PMI fell to 53.5 in July versus 55.1 previous (revised downward from 55.2). Meanwhile, REINZ house sales rose 37.8%y/y in July compared with a previous reading of 29.2% while median dwelling price surged 11.8%y/y versus an increase of 5.4% the previous month. Kiwi shares reacted negatively to the headlines and retreated -0.34% while NZD/USD lost -0.39% since yesterday.
In Australia, the Aussie reacted sharply to the new yuan fixing but remained stable around $0.7380. On the medium term, the pair is moving within its 1-month between 0.7216-0.7460. Australian shares edged slightly higher and added 0.11%.
In Europe, July CPI figures marched roughly expectation with Spanish inflation at 0%y/y, French one at 0.2%y/y and German one at 0.1%y/y. Equity futures are in positive territory this morning after having lost 3% in average. German DAX is up 1.65%, French CAC 40 +1.89%, Swiss SMI +1.76%, Euro STOXX 600 +1.86% while UK shares adds 1.26%.
GBP/USD is moving toward the resistance standing around 1.5640/83 and will likely remain below this threshold in case of strong US retail sales due later today. On the downside, the cable should find support at 1.5461 (Fib 61.8% on June rally).
Today traders will be watching CPI figures from Sweden; US retail sales, import prices, initial jobless claims, business inventories and Bloomberg consumer comfort index; ECB minutes; new housing price index from Canada.
Currency Tech
R 2: 1.1436
R 1: 1.1278
CURRENT: 1.1125
S 1: 1.0819
S 2: 1.0660
GBP/USD
R 2: 1.5930
R 1: 1.5803
CURRENT: 1.5632
S 1: 1.5330
S 2: 1.5171
USD/JPY
R 2: 135.15
R 1: 125.86
CURRENT: 124.51
S 1: 120.41
S 2: 118.89
USD/CHF
R 2: 1.0129
R 1: 0.9984
CURRENT: 0.9776
S 1: 0.9571
S 2: 0.9072