TIG Post

Tag: Chinese yuan

  • ‘Debt-ridden Ghana’s cedi posts world’s biggest gain against US dollar’

    This week, Ghana’s currency outperformed other currencies in relation to the dollar, fueling hopes that the indebted nation would soon be able to access a rescue from the International Monetary Fund.

    “The currency was the lowest in Africa last week, more than 30% undervalued compared to its 25-year history, so some return after the enormous decline recently isn’t that surprising,” said Charles Robertson, the global chief economist at Renaissance Capital Ltd. in London.
    Additionally, the IMF is here, which ought to make dollar support possible.

    The gains came even as the African nation put its local-currency sovereign bonds in what Fitch Ratings described as a “default-like process,” and the holders of its dollar bonds braced for capital losses. The restructuring is needed to put Ghana’s debt on a sustainable path and secure a $3 billion IMF loan.

    Investors are returning to some of the riskiest corners of emerging markets amid the dollar’s biggest quarterly decline since 2010. They’re betting that a Federal Reserve pivot to a less-hawkish monetary stance will continue to weigh on the greenback in the coming months.

    The cedi advanced Friday to 12.9648 per dollar, the strongest level since October on a closing basis. It’s still down 52% this year.

    Optimism on the cedi “is a combination of a somewhat more hawkish central bank, some progress on the restructuring front, and a bit of buying the news,” said Simon Quijano-Evans, the chief economist at Gemcorp Capital Management Ltd. in London.

    Other emerging currencies that outperformed this week include the Vietnamese dong, Chilean peso, Costa Rican colon, and Chinese yuan.

  • Chinese yuan falling due to concerns about Xi’s third term

    The Chinese yuan fell to its lowest level in nearly 15 years on Tuesday as investors fled Chinese assets amid concerns about Xi Jinping’s dramatic move to consolidate power in a major reshuffle of Communist Party leaders.

    On the tightly controlled domestic market, the yuan dropped sharply, hitting the weakest level since late 2007. It was last down 0.6% at around 7.3 per dollar. The currency has lost 15% against the US dollar this year.

    In trading outside of mainland China, the yuan briefly plunged to around 7.36 per dollar early Tuesday, the lowest level on record, according to Refinitiv, which has data going back to 2010. It later pared losses, trading at 7.33 by 3:35 p.m. Hong Kong time (3.35 a.m. ET).

    The currency was pegged at 8.28 to the US dollar for years until 2005 when China moved to a “managed floating exchange rate.” It then appreciated steadily, climbing to a peak of nearly 6.01 in 2014.

    The declines came alongside a historic market rout for Chinese assets worldwide. On Monday, Chinese stocks plummeted in Hong Kong and New York, wiping out billions of dollars in market value. Hong Kong’s benchmark Hang Seng (HSI) Index closed down 6.4%.

    The Nasdaq Golden Dragon China Index, which tracks many popular Chinese companies listed on Wall Street, dived more than 14%. On Tuesday, the Hang Seng (HSI) slipped further and was down 0.2% in afternoon trading.

    The huge sell-offs came just days after the ruling Communist Party unveiled its new leadership for the next five years. In addition to securing an unprecedented third term as party chief, Xi packed key positions with staunch loyalists.

    A number of senior officials who have backed market reforms and opening up the economy were missing from the new top team, stirring concerns about the future direction of the country and its relations with the United States.

    International investors spooked by the outcome of the leadership reshuffle dumped Chinese assets despite the release of stronger-than-expected Chinese GDP data on Monday. They’re worried that Xi’s tightening grip on power will lead to the continuation of Beijing’s existing policies and further dent the economy, which despite the rebound last quarter is still growing way below the official 5.5% target for this year.

     

  • Chinese yuan: Exchange rate drops low against the US dollarUS dollar

    The Chinese yuan has fallen to new record lows in relation to the rising US dollar.

    The yuan, which is traded worldwide, dropped to its lowest level since statistics started to be made accessible in 2011.

    China’s domestic currency also reached its weakest point since the 2008 global financial crisis.

    It comes as the dollar continues to rise in value against other major currencies after the US central bank increased interest rates again earlier this month.

    Meanwhile, on Wednesday, major stock market indexes across Asia fell sharply.

    Hong Kong’s Hang Seng index closed 3.4% lower, Japan’s benchmark Nikkei index closed 1.5% lower and the Kospi in South Korea ended the day down by 2.4%.

    Many investors see the dollar as a safe place to put their money in times of trouble.

    That has helped to drive up its value against other currencies, including the British pound – which hit an all-time low against the dollar on Monday.

    Also on Wednesday, the dollar reached a fresh 20-year high against a closely-watched group of leading global currencies.

    The yuan’s slide is yet another example of a currency weakening as a result of the strong dollar.

    It is also about the very different paths China and the United States are taking in response to economic issues at home.

    The People’s Bank of China (PBOC) has been easing interest rates to revive growth in an economy ravaged by Covid lockdowns, while the US Federal Reserve is moving aggressively in the opposite direction as it tries to control inflation.

    Such a divergence is not wholly problematic, Joseph Capurso, head of international and sustainable economics at the Commonwealth Bank of Australia told the BBC.

    The fall in the currency’s value can actually be helpful for exporters within China, he said, because it would make their goods cheaper and so could increase demand.

    That said, exports only make up 20% of the Chinese economy these days, so a weak yuan will not turn around fundamental weakness domestically largely caused by Beijing’s zero-Covid strategy and a property crisis, said Mr Capurso.

    A weaker currency can also lead to investors pulling their money out of the country and uncertainty in financial markets – something Chinese officials will want to avoid with the Communist Party Congress coming up next month.

    The yuan’s fall has caused weakness in other currencies of developed economies in the region, including the Australian and Singapore dollar as well as the South Korean won.

    Last week, the Bank of Japan intervened to support the yen for the first time since 1998, after the currency weakened against the dollar.

    Asia’s emerging markets are vulnerable too – as they sell raw materials and components to China’s factories and so have increasingly become dependent on the yuan.

    Washington has in the past accused China of intentionally devaluing its currency to keep exports cheap and imports from the US expensive.

    While the strong dollar has rattled world markets, it is unlikely to deter the Fed from continuing to raise rates.

    “The strong dollar is working for the US market,” Dimitri Zabelin at the London School of Economics foreign policy think-tank said.

    “It will be a consideration but it will not weigh as heavy as domestic concern about inflation.”

    China’s central bank has been trying to slow the yuan’s slide by making it more expensive to bet against the currency. The PBOC also cut how much foreign currency banks have to hold.