15 Apr 2014
Asia EM Express: China's Monetary conditions continue to tighten
FXStreet (Łódź) - The People's Bank of China set today's yuan reference rate at a seven-month low of 6.1571, down 0.07% from the previous day, as big industrial firms were buying large amounts of dollars for trade and mergers and acquisitions, while major banks curtailed their dollar purchases.
In the opinion of Bill Hubard, Chief Economist Markets.com : “There seems to be a fundamental change in the behavior of China’s monetary authorities. Previously, the authorities made sure that CNY traded higher ahead of the IMF/G-20 meetings. Not this time.”
The analyst also notes that: “the authorities have withdrawn liquidity from money markets overnight, reacting to the fall of the 7-day Shibor rate from 3.0% to 2.5% over the past couple of weeks. Falling money market rates ‘suggest’ that money markets are well supplied with liquidity, explaining the strong performance of social funding activities too. Against this background, China may well allow CNY volatility to increase to reduce the inflow of foreign currency.”
Economic data
On an annual basis Chinese M2 Money Supply registered record low growth of 12.1% in March, down from 13.3% in February and below forecasts of a 13.3% increase. New Loans jumped to CNY 1,050.0B from CNY 644.5B, beating projections of a rise to 1,000.0B.
According to Tim Condon, Head of Research-Asia at ING: “Record Low M2 Growth in March signals stabilising monetary policy, which we consider positive for risk assets.”
“By stabilizing M2 growth the PBoC will provide a nominal anchor for inflation expectations. We think that if it did that, China’s macros ills, especially over-borrowing and asset price inflation, would disappear. This would allow the authorities to get on with their enormous agenda of micro reforms.”
Moreover China’s foreign currency reserves grew at the fastest rate in two years in Q1, increasing to $3,950 billion from $3,820 billion, above expectations of $3,920 billion.
Statistics Singapore informed on Tuesday that year-on-year Retail Sales plunged 9.5% in February, compared with the 0.1% increase in January. On a monthly basis Singapore's Retail Sales climbed 3%, up from the 0.6% rise.
Indian WPI grew 5.7% year-on-year in March, following a 4.7% increase in February and above consensus of +5.3%.
Technicals
The Chinese yuan weakened on Tuesday following the PbOC's decision to fix its official midpoint at the lowest level since September 2013.
The USD/CNY rose by 0.06% to 6.2226. The daily FXStreet Trend Index was slightly bullish, and the OB/OS Index neutral. RSI was at 66 at the last close and has fallen to 55 so far today. The Daily 2-StDev Volatility Bandwidth was shrinking at 95 pips, with ATR (14) shrinking at 113 pips. The 1D 200 SMA was at 6.1107, while the 1D 20 EMA was at 6.1984.
In the opinion of Bill Hubard, Chief Economist Markets.com : “There seems to be a fundamental change in the behavior of China’s monetary authorities. Previously, the authorities made sure that CNY traded higher ahead of the IMF/G-20 meetings. Not this time.”
The analyst also notes that: “the authorities have withdrawn liquidity from money markets overnight, reacting to the fall of the 7-day Shibor rate from 3.0% to 2.5% over the past couple of weeks. Falling money market rates ‘suggest’ that money markets are well supplied with liquidity, explaining the strong performance of social funding activities too. Against this background, China may well allow CNY volatility to increase to reduce the inflow of foreign currency.”
Economic data
On an annual basis Chinese M2 Money Supply registered record low growth of 12.1% in March, down from 13.3% in February and below forecasts of a 13.3% increase. New Loans jumped to CNY 1,050.0B from CNY 644.5B, beating projections of a rise to 1,000.0B.
According to Tim Condon, Head of Research-Asia at ING: “Record Low M2 Growth in March signals stabilising monetary policy, which we consider positive for risk assets.”
“By stabilizing M2 growth the PBoC will provide a nominal anchor for inflation expectations. We think that if it did that, China’s macros ills, especially over-borrowing and asset price inflation, would disappear. This would allow the authorities to get on with their enormous agenda of micro reforms.”
Moreover China’s foreign currency reserves grew at the fastest rate in two years in Q1, increasing to $3,950 billion from $3,820 billion, above expectations of $3,920 billion.
Statistics Singapore informed on Tuesday that year-on-year Retail Sales plunged 9.5% in February, compared with the 0.1% increase in January. On a monthly basis Singapore's Retail Sales climbed 3%, up from the 0.6% rise.
Indian WPI grew 5.7% year-on-year in March, following a 4.7% increase in February and above consensus of +5.3%.
Technicals
The Chinese yuan weakened on Tuesday following the PbOC's decision to fix its official midpoint at the lowest level since September 2013.
The USD/CNY rose by 0.06% to 6.2226. The daily FXStreet Trend Index was slightly bullish, and the OB/OS Index neutral. RSI was at 66 at the last close and has fallen to 55 so far today. The Daily 2-StDev Volatility Bandwidth was shrinking at 95 pips, with ATR (14) shrinking at 113 pips. The 1D 200 SMA was at 6.1107, while the 1D 20 EMA was at 6.1984.