Dollar takes a breather as trade concerns linger, yuan steadies

Daniel Fowler
July 6, 2018

"It could take at least several months for the major stock indexes to bottom out", he said.

There had also been reports of suspected intervention, with some major Chinese banks selling the dollar after the yuan slid past 6.70 per dollar in the swaps market.

The decline came amid lingering trade concerns as tariffs on billions of dollars in USA and Chinese goods are set to take effect later this week.

Software shares posted strong performance, with Yuanguang Software Information Co., Ltd rising 3.56 percent to close at 8.72 yuan.

The dollar was down 0.2 percent to the yen at 111.35 while the euro traded up 0.1 percent at $1.1665 against the euro.

The Shanghai index dropped 2.5 percent on Monday and was down more than 1 percent on Tuesday morning.

The mood was more cheerful in Europe where a pan-European equity index rose 1 percent, the euro firmed and bond yields climbed after German Chancellor Angela Merkel struck a migration deal with her Bavarian conservative coalition partners.

On equity markets, Hong Kong dived as much as 3.3 percent at one point to nine-month lows, hit also by a USA move to block China Mobile from offering services to the US market. The Hong Kong market remained choppy and was last down 1.9 percent, while the Shanghai bourse edged up 0.05 percent.

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"Since the dollar and the Swiss franc softened while the Mexican peso and some other emerging currencies gained, it may appear like a risk-on day", said Kengo Suzuki, chief forex strategist at Mizuho Securities.

On Friday, Chinese stocks and the yuan bounced with benchmark share indexes having one of their best days since mid-2016. "Now, I think, the realization comes in that downside risk could be more significant", Rainer Michael Preiss, executive director at Taurus Wealth Advisors, told CNBC's "Capital Connection".

The yuan advanced as much as 0.7% against the dollar shortly after trading began in mainland China on Wednesday.

On the back of the force majeure in Libya and the supply outages in Canada, the markets are staggering tight over the short run, and despite suggestions of more supplies coming to market, traders continue to buy dips, as increased barrels may only act to prevent a more rapid increase in prices given the global economy's insatiable demand for oil. The yuan hit its weakest level against the dollar in 11 months on Tuesday before bouncing back amid reports that the government had intervened to support the currency.

The yuan was last traded at 6.6960 per dollar.

"This would likely dent China's hopes of further internationalizing the [yuan] - and should in itself be a deterrent to using [the yuan] as a policy option in the trade wars", Kojodjojo said.

Trump told the World Trade Organization on Monday that "we'll be doing something" if the United States is not treated properly, just hours after the European Union said that USA automotive tariffs would hurt its own vehicle industry and prompt retaliation.

USA markets are set to close early for the Fourth of July holiday.

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