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Free AccessMNI DATA TABLE: MNI China Interbank Liquidity Index (Jul) - 1
MNI DATA TABLE: MNI China Interbank Liquidity Index (Jul) - 2
MNI CHINA MONEY WEEK: Trade Talks To Keep Yuan On Watch
LONDON (MNI) - The U.S./China trade talks were back on traders radar
screens Friday, following Chinese media reports suggesting movement on the
wording of a joint statement between the two countries. State-owned Xinhua News
reported "substantial progress" on the wording, although there was no further
detail available.
Obviously the exact wording of any agreements on the currency will be of
great interest, but there has been no advance on the weekend comments from
People's Bank of China Governor Yi Gang, who said negotiators reached agreement
on "many crucial and important" issues, when asked on the progress over the yuan
exchange rate issues in the trade talks, in an address made on Sunday.
Yi went on to reveal that China and the U.S. discussed how to respect each
country's monetary authority's autonomy deciding monetary policies, adhering to
the principle of letting the market decide exchange rate, living up to promises
made in each G20 summit, as well as data disclosure according to IMF rules.
--QUITE STABLE
He noted that having a stable yuan doesn't imply a certain level against
the dollar, and yuan's value must be flexible to benefit China's economy and
stabilize the country's international payment, Yi said. The currency was "quite
stable" in 2018 and its volatility was much smaller than that of sterling/dollar
and euro/dollar, Yi said.
The exchange rate isn't China's main focus while making monetary policy
which prioritizes domestic situation, and the expectation on the yuan exchange
rate has become more stable after China introduced more hedging tools and pushed
for more market-based reform, Yi said.
The yuan has edged steadily higher since the turn of the year on a
trade-weighted basis, regaining around half of last year's fall, from peak to
trough, since November. Likewise, USDCNY has retraced the best part of 40% of
last year's trough to peak move. Even so, last year's swift renminbi devaluation
continues to provide worry for the U.S. negotiating team.
--FIXING WATCH
The daily USD/CNY fixings could generate increased interest again in coming
weeks. The PBOC fixed the mid-point above CNY6.70 on Thursday and Friday, with
Commerzbank suggesting that the PBOC might have used its "filtering mechanism",
which would "adjust some factors when determining the fixing rates and smooth
out the CNY exchange rates amid unusual market movements.
However, a significant break below 6.70 on a sustained basis could be the
start of a move higher.
China's annual National People's Congress wrapped up Friday with no
inference towards broader monetary stimulus outside of previously referenced
targeted measures. It would seem that the PBOC is keen to avoid pulling wider
monetary levers, fearful of the message that it will send, as well as the
knock-on implications that it may have for the country's credit markets and the
yuan.
--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com
[TOPICS: M$A$$$,M$Q$$$,MN$FX$]
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Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.