MNI: China Yuan Sees Biggest One-Day Fall in Two Years

--Contracting Trade Surplus Triggers Yuan Strength Correction

     BEIJING (MNI) - China's yuan saw the largest one-day drop against the U.S.

dollar in two years Thursday, coming after China announced its global trade

surplus contracted by 58.9% in January.

     The USDCNY cross rate closed at 6.3260, surging 664 pips, the pair's

biggest daily rise since August, 12, 2015, which was the day after the PBOC

suddenly allowed the yuan to depreciate by nearly 2% against the U.S. dollar.

     The offshore pair, USDCNH, also rose sharply, up 809 pips during the day to

as high as 6.3771.

--TRADE TRIGGER

     The trade surplus was a trigger for the move. "While after China January's

trade data, spot turned to better bid tone. Short covering as well as higher CNH

lent support to onshore spot," a forex trader in a large commercial bank told

MNI. "Everyone came to buy, and the market bounced back quickly to 6.32 before

lunch," the trader added.

     China's trade surplus declined 58.9% to $20.34 billion in the first month

of 2018, the smallest surplus reported since March 2015. [see MNI: China January

Imports Hit 11-Month High, Surplus Narrowed].

--MARKET CORRECTION

     The sharp appreciation of the yuan so far this year has sown the seed for

Thursday's sharp fall. Before the sell-off, the currency had appreciated almost

4% year-to-date, following a 6.3% rise against dollar in 2017.

     Mei Xinyu, an advisor to trade officials in China, told MNI: "The plunge

was a proper correction of the previous overshoot. The sharp appreciation has

been out of line with economic fundamentals, which was not sustainable," he

continued, "The big appreciation of the yuan has been devastating to Chinese

exports and policy-makers should take the impact into consideration."

     Demand for foreign currency is increasing, with overseas players

withdrawing from volatile China stock markets and outbound consumer travel

levels rising ahead of the Chinese New Year holiday. Both are providing a

support for the USDCNY rise.

     Another forex trader told MNI: " The trading volume is small while

approaching the new year holiday, so a thin market helps magnify fluctuation."

--MNI Beijing Bureau; +86 (10) 8532 5998; email: marissa.wang@marketnews.com

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

[TOPICS: M$A$$$,M$Q$$$,MI$$$$,M$$FX$]