Spot silver was up 0.7% at $15.31 an ounce, platinum slipped by 0.2% to $986.75 and palladium was down 1.3% at $607.75.
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In the Hong Kong market, the basis spread between the offshore and onshore yuan tightened further after last week’s blowout, indicating market sentiment was returning to normal. Instead, it links the yuan’s value to a basket of currencies. “As long as China doesn’t continue to aggressively devalue the Chinese yuan, we will see it in the next six months and the US dollar will be stronger”, said Jeffrey Halley, FX trader for Saxo Capital Markets in Singapore, referring to when the Fed might start raising interest rates.
China’s foreign market exchange rate has converged with its official reference rate since Thursday, after being consistently traded at more than one percent weaker over the past few months, states Bloomberg. Announcing its recent actions, the PBOC stated that market trading forces should help correct divergence between the market rate and the central parity, but since the third quarter of 2014, China’s significant trade surplus and the appreciation of the U.S. dollar against other major currencies have affected the RMB exchange rate in different ways.
Once pegged to the U.S. dollar, the renminbi exchange rate has been allowed to float since 2006 within a specified range around a fixed base rate or midpoint the PBOC determines. Meanwhile, there is no rush to reenact the Zimbabwean dollar, says Charity Dhiwayo, governor of the Reserve Bank of Zimbabwe.
The People’s Bank of China devalued the currency last week by almost 2 percent, triggering an avalanche of selling by investors who feared Beijing wanted to engineer a much sharper decline to support weak exports. A cheaper yuan gives Chinese exporters a price advantage in foreign markets. U.S. crude CLc1 was down 1.8 percent at $41.73 a barrel, within reach of a six-year trough of $41.35 struck on Friday.
Plenty of reasons. The surprise devaluation suggests that something is spooking the Chinese government.
The People’s Bank of China is limiting the yuan’s depreciation to prevent an exodus of capital as it contends with the slowest economic growth in more than two decades. Signs of trouble are accumulating.
Property stocks aided yesterday’s turnaround, with the CSI China mainland real estate index rising 2.2 per cent ahead of the release of July home price data today. The gauge also reportedly doubled from earlier this month.
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“For the moment, the PBoC seems to prefer flexibility, by adding liquidity incrementally and the concern is probably that the market, taking RRR cuts as big easing moves, may push the RMB further”, wrote Societe Generale in a morning note.
