This week in renminbi: January 16, 2017
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This week in renminbi: January 16, 2017

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Welcome to Trump-week, as the president-elect makes final preparations before being sworn into office this Friday. Trump dominated weekend headlines by declaring that the long-standing One China policy is now up for negotiation. In the renminbi markets, meanwhile, the week is off to a slow start as the currency stabilises, and Chinese authorities discuss the future role of the Shanghai free trade zone.

The Trump corner:

  • In just a few days Donald Trump will stand outside Capitol Building in Washington, DC, for his swearing-in ceremony as the next US president. But that did not stop him from turning up the heat on US-China relations. Trump told the Wall Street Journal on January 13 that he sees the One China policy – an informal agreement on China’s view that Taiwan is ultimately under its sovereignty – as negotiable.

    Trump said that his views on the matter would be dependent on progress in bilateral talks with China on trade and currency practices.

  • Trump has stated in the past that upon taking office he will declare China a currency manipulator for keeping the RMB artificially undervalued.

FX:

  • The onshore RMB closed the second trading week of 2017 at 6.9022, flat on the previous session. The offshore RMB (CNH), meanwhile, was still trading at a premium, closing at 6.8378, up 0.3% in the day. On Monday, People’s Bank of China set the fix 35bp stronger at 6.8874. The two currencies were moving in opposite directions, with the CNH down 0.21% at 6.8520 at 10.30am, and the CNY up 0.13% at 6.8929, according to Wind data.

  • In the previous week, the CFETS trade-weighted currency index lost ground, down 0.5% to 94.78. The other two indices, based on the special drawing rights (SDR) basket and the Bank for International Settlements basket, followed suit and closed at 95.86 and 96.18, down 0.2% and 0.5% respectively.

  • Chinese authorities seemed to have temporarily stepped back from further intervention, with liquidity conditions easing and the CNH Hibor overnight rate at 7.57% on January 13. The rate had peaked at 61.33% just a week earlier.

  • The State Administration of Foreign Exchange (Safe) has rubbished recent media reports on the introduction of capital controls as misleading, untrue and disruptive to market operations. Safe, however, also said in the same blog post that it will do its best to rid the FX market of illegal activities and commercial banks should strengthen their supervision to ensure capital are being used for the right purposes.

FTZ:

  • In a Q&A with Liberation Daily, Zheng Yang, secretary of the party committee of Shanghai Finance said the next batch of financial reforms on the Shanghai FTZ will revolve around increasing the type of RMB products and push for full capital account convertibility.

  • The Shanghai FTZ could also benefit from emulating steps implemented in the Shenzhen counterpart, part of the Guangdong FTZ, according to Wang Liang, deputy director of the Committee on the Economy of Shanghai under the Committee of the Chinese People's Political Consultative Conference (CPPCC).

  • Wang told local media that a priority for the Shanghai authorities should be to integrate its commodity trading platform and open it to the global market. He said commodity trading in the Shanghai FTZ was so far limited to Chinese SOEs, and there had been insufficient efforts to boost trading from international market participants. The Shanghai Gold Exchange opened to foreign participants in September 2014.

  • Wang also said Shanghai should emulate the Guangdong FTZ in having no restrictions on the size and maturity of cross-border RMB loans.


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