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Business Recorder
21 hours ago
- Business
- Business Recorder
China's yuan rises to 3-week high on fresh signs of easing trade tensions, firmer guidance
SHANGHAI: China's yuan climbed to a three-week high against the dollar on Wednesday, buoyed by fresh signs of easing trade tensions between the world's two largest economies and the central bank's persistently stronger-than-expected guidance fix. Investor hopes for the two superpowers to reach a final trade deal rose after U.S. Treasury Secretary Scott Bessent said on Tuesday that U.S. and Chinese officials will meet in Stockholm next week to discuss extending a tariff truce. The 90-day tariff truce agreed by Washington and Beijing during trade talks in Switzerland is due to end on August 12. The EU-China summit later this week and the August deadline for Beijing and Washington to 'reach a trade deal will matter with regards to external demand conditions for China, and are likely to set the tone for the China trade in the second half,' Barclays analysts said in a note. The onshore yuan rose to a high of 7.1602 per dollar, the loftiest level since July 3, before changing hands at 7.1617 as of 0342 GMT. Its offshore counterpart followed suit to rise past 7.16 per dollar level for the first time in nearly three weeks. It last traded 0.14% higher at 7.1602. Currency traders also attributed the yuan strength to a much firmer guidance fix as the central bank lifted the midpoint to a fresh eight-month high. Prior to the market opening, the People's Bank of China (PBOC) set the midpoint rate at 7.1414 per dollar, its strongest since November 6 and 182 pips firmer than a Reuters estimate of 7.1596. The spot yuan is allowed to trade 2% either side of the fixed midpoint each day. Some market participants and analysts argued that the economic fundamentals may not support a significantly stronger currency for the time being. 'Exports could face stronger tariff headwinds in the second half after front-loading in the first half … a stronger yuan could further dampen corporate profitability and further weaken the labour market,' said Becky Liu, head of China macro strategy at Standard Chartered. She said a rising yuan would worsen China's deflationary pressure even as authorities are making efforts to revive demand and the broader economy. Liu revised her yuan forecasts to 7.25 per dollar at end-September and 7.35 at year-end, up from the previous predictions of 7.65 and 7.75, respectively - still notably weaker than the current spot level.
Business Times
2 days ago
- Business
- Business Times
China's swap curve normalises as deflation fears begin to ease
[BEIJING] A distortion in China's money market has vanished after persisting throughout this year, a nascent sign that investors expect the latest stimulus efforts to reflate the economy. The country's five-year interest-rate swaps (IRS), a popular hedging tool, climbed above their one-year counterpart on Friday (Jul 18) and have since widened the gap to three basis points, according to data compiled by Bloomberg. That helped end a discount that was as steep as 15 basis points in February, when deflation fears were deeply entrenched. The normalisation, driven by a rise in the five-year rate and a drop in the one-year one, suggests expectations for less monetary easing over the longer term. Concerns over deflation have started to ease following Beijing's 'anti-involution' campaign, which aims to curb industrial oversupply and cutthroat price competition and has started to feature more prominently in official policy messaging. The latest swap trend 'partly reflects potential impacts from this new round of supply-side reform, which will likely lift China out of deflation in the next 12-24 months', said Becky Liu, head of China macro strategy at Standard Chartered Bank in Hong Kong. The market is less bearish on the longer-term outlook, but still pricing in rate cuts near term, she added. China's economy has also shown signs of resilience amid US tariffs. The economy expanded 5.2 per cent in the second quarter, exceeding analysts' expectations of 5.1 per cent and prompting at least nine international banks to raise their forecasts for this year. While the swap curve was also inverted in the past including in 2013 and 2015, it has rarely persisted for more than a couple months. This year's lengthy distortion was partly driven by expectations of future monetary easing as investors anticipated prolonged deflation. That outlook dragged down the five-year IRS. Such concerns appeared valid as producer prices fell the most since July 2023 last month, but have since given way to cautious optimism driven by hopes that supply-side reform will help lift prices. Another round of positive news arrived over the weekend, as China's 1.2 trillion yuan (S$214 billion) mega-dam project in Tibet promises an economic jolt for sectors such as construction, cement and steel. 'These are pressuring Chinese bond holders and encouraging traders to bet on higher IRS rates,' said Xing Zhaopeng, senior China strategist at Australia & New Zealand Banking Group in Shanghai. 'The rise of long-term rates may sustain into the future. The IRS curve steepening is just starting.' The five-year IRS climbed two basis points to 1.55 per cent on Monday, the highest since early April. The one-year IRS was steady after dropping two basis points last week. BLOOMBERG
Mint
15-07-2025
- Business
- Mint
China Bond ETFs Draw Strong Inflows as Investors Seek Safety
Some of China's largest exchange-traded funds tracking long-term bonds have seen their biggest inflows in months, reflecting growing investor demand for safer assets even as signs of economic resilience emerge. The Bosera SSE 30-Year China Treasury Bond ETF has generated record inflows of around around 700 million yuan in each of the past two sessions, according to Bloomberg-compiled data, bringing its market capitalization to more than 9 billion yuan. The Pengyang ChinaBond 30-year Treasury Bond ETF, whose fund is double that size, attracted an inflow of 1.1 billion yuan on Monday, the most since March. In another sign of appetite for sovereign debt, futures on 30-year Chinese government bonds jumped as much as 0.5% Tuesday, the most since May 30. The move followed China's release of a mixed set of economic data, including higher-than-expected gross domestic product in the second quarter, June retail sales that came below estimates, and a continued contraction in property investments. The rising interest in long-term bonds in China is a contrast to the turmoil in developed markets, where ultra-long bonds have been rocked by rising fears that governments are spending more than they can afford. The surge in demand for the ETFs underscores investors' broad bullishness for China's bond market even as equities rebound, amid bets that the People's Bank of China will support an economy facing potential export headwinds. At a Monday press briefing, central bank officials again vowed to maintain a moderately loose monetary policy and struck a measured tone on risks tied to banks' purchases of government bonds. 'We expect China's GDP will decelerate in the second half of the year and local rates will be falling more quickly with deflationary pressure likely to deepen,' said Becky Liu, head of China macro strategy at Standard Chartered Bank. READ: Xi Urges 'New Model' for China Urban Plan in Rare Meeting China's 10-year government bond yields could fall to 1.3% by year-end versus the current level of around 1.66%, Liu said, presuming the PBOC will keep liquidity loose and further roll out monetary easing measures. This article was generated from an automated news agency feed without modifications to text.
Business Times
15-07-2025
- Business
- Business Times
Chinese investors' FX pile hits US$1 trillion amid low local rates
[BEIJING] Chinese corporates and households boosted their foreign-currency deposits last month to the highest in three years, as they shunned the renminbi on bets domestic interest rates will remain low. Total foreign-currency deposits onshore rose to US$1.02 trillion in June, the highest since March 2022, according to data from the People's Bank of China released on Monday (Jul 15). The net increase in the first half of the year was US$165.5 billion, the biggest jump in data going back to 2005. The accumulation of foreign deposits reflects lower confidence in the economy and expectations for a further depreciation in the currency even as the US dollar weakens amid US President Donald Trump's tariffs and fiscal policy. Fixed-asset investments in the first half of the year missed estimates, reflecting caution among companies to deploy funds for expansion. 'This is a reflection of a low FX conversion ratio still due to a much lower interest rate for renminbi than US dollars,' said Becky Liu, head of China macro strategy at Standard Chartered Bank. There is also a 'strong desire to diversify the business into global markets given deflationary entitlement at home, and a lack of conviction that the renminbi will continue to appreciate despite a weak US dollar,' she said. The renminbi has risen in 2025 after posting losses for three consecutive years as the US dollar fell more than 8 per cent this year. Still, the renminbi's gains have lagged those in most Asian currencies as the Chinese economy continues to face deflation and the prospect of further interest-rate cuts to support growth. BT in your inbox Start and end each day with the latest news stories and analyses delivered straight to your inbox. Sign Up Sign Up Both residents and non-financial companies increased FX savings last month. Trade surplus reached US$114.8 million in June, the highest in five months. Exporters repatriating their proceeds onshore may have also boosted foreign deposits. While PBOC data reflect activities in June, there are some signs that Chinese traders may have started pulling back from the greenback, with swap points reflecting decreasing demand for the US currency. However, any withdrawal is unlikely to be rapid with US interest rates still much higher than China's, and with doubts emerging over a widely expected Federal Reserve rate cut in September. 'The onshore renminbi is more likely to depreciate than appreciate in the second half, on weaker economic growth, weaker exports, and stronger outbound securities investments after the recent relaxation,' Liu said. 'The FX deposit will continue to increase in the second half.' BLOOMBERG
South China Morning Post
07-07-2025
- Business
- South China Morning Post
Hong Kong dollar faces prolonged weakness on liquidity, rates drawback, bank says
The Hong Kong dollar faces prolonged weakness because of substantial liquidity in the local financial system and a wide gap between local and US interest rates, according to strategists. The local currency could trade near HK$7.85 per dollar – the weak side of its HK$7.75 to HK$7.85 trading band – over the next three to six months, Standard Chartered Bank said in a report on Friday. Sizeable carry-trade positions and a poor asset growth outlook would slow the pace of liquidity tightening from currency-market interventions, it said. The Hong Kong Monetary Authority (HKMA) intervened four times since late June to defend the local currency from weakening beyond HK$7.85 per US dollar, reducing the aggregate balance – a measure of liquidity – by more than a third to HK$114.5 billion. The local currency may find equilibrium when the balance drops by another 50 per cent or so, based on precedents, the bank said. 'We see liquidity continuing to be drained by interventions. But this process is likely to be lengthy, taking over three months or even the entirety of the second half,' said Becky Liu, head of China macro strategy, who co-authored the report. 'Liquidity conditions may stay looser for longer this time around.' Standard Chartered's Wealth Management Centre in Central. Photo: Nathan Tsui Some factors in Hong Kong were slowing the HKMA's liquidity draining moves, she said. The housing market slowdown had crimped demand for loans, while diversification from US dollar assets had fuelled deposits. Both would further depress the loan-deposit ratio in Hong Kong from a 16-year low, she added.
