Yuan Rates

The USD/CNH tested the lower bond of the March opening range on Tuesday, but failed to break below it. On the day, the PBOC guided the Yuan by -81 pips weaker against the U.S. Dollar to 6.8782. We discussed that neither the Yuan nor the Dollar has gained sufficient momentum to lead a new trend in the USD/CNH. A range trading strategy could be applied to the pair. Also, read our Currency Analyst James Stanley’s education piece to learn how to place stops and manage risks.

Market News

China Finance Information: a finance online media administrated by Xinhua Agency.

- China’s FX regulator approved 3 spot Yuan exchange rate market makers, 3 forward/swap market makers, 1 trial spot rate market makers and 3 trial forward/swap market makers, effective on April 1st. From then, in China’s interbank FX market, there will be 32 market makers for spot Yuan exchange rate, 27 market markers for forward/swap Yuan exchange rate, 2 trial market makers for spot Yuan exchange rate and 7 trial market markers for forward/swap Yuan exchange rate.

- China’s electricity consumption in the first two months of 2017 rose +6.3% to 935.6 billion kwh from a year ago, according to a report released by National Development and Reform Commission on Monday. In specific, the manufacturing sector has used 632.7 billion kwh, expanding +6.7% on an annualized basis. Electricity consumed by manufacturing companies has been used as a leading indicator to predict China’s economic growth. A rise in the gauge hints that producers may receive increased orders and thus use machines more often in the effort to increase output.

Hexun News: Chinese leading online media of financial news.

- “MSCI’s new proposal to include Chinese A-shares indicates that the institution might have found a compromise solution; the odds of such inclusion may be enhanced”, Hong Kong Exchange and Clearing Chief Executive Charles Li commented on Monday.

Last Wednesday, MSCI sent out a proposal to its stakeholders regarding Chinese A-shares entrance to its Emerging Market Index, marking it the fourth attempt. In the revised paper, the list of A-shares companies will be cut to 169 from 448 and the weighting of Yuan-denominated shares will be reduced to 0.5% from 1.0%. A decision on the inclusion is expected to be announced in June.

Chief Li also commented on the possibility of setting up a trading link between mainland and Hong Kong’s bond markets. He said that this probably will not happen in the near future as Hong Kong’s bond market is less mature compared to its equity market.

Therefore, international investors who are seeking to purchase Yuan-denominated bonds through Hong Kong channels may want to take a second thought. The good news is that Chinese regulators have introduced a series of measures to open up China’s domestic bond market and facilitate overseas bond purchases. This could be a more practical way for foreigners to invest Yuan-denominated bonds in the near future.