Offshore renminbi CNH dropped to 12-month low at 6.74 yesterday as dollar climbed against its major peers after Powell’s testimony.

The Yuan has entered into a fast depreciating trajectory since early June, alongside with a selloff in A-share and H-share equities due to outflow concerns. The PBoC defended the currency in early July but now it seems the gravity is doing its job again as monetary policy diverges further between US and China.

The USD/CNH pair has exhibited strong negative correlation with the Shanghai Composite recently, thus market participants will keep one eye on the currency as a possible indicator for stock market movement.

Against the backdrop of rising defaults, tightening liquidity, chaos in P2P lending platforms and the slowing pace of economic growth, the People’s Bank of China (PBoC) has finally stepped in to inject liquidity into the credit market aiming to support SMEs and prevent the possibility of systematic risk. The central bank instructed major commercial banks to expand lending and buy more bonds issued to corporates with credit rating of AA+ and below, which are usually more susceptible to defaults, using Medium Term Loan Facilities (MLF).

US equities closed marginally higher, with Morgan Stanley’s upbeat earning lifting market sentiment. Its share price jumped 3% after it announced 39% rise of profit in Q2. 

In Asia, Hang Seng Index has came to a key support level of 28,000 points, breaking down which would likely to open room for more downsides towards the next support level at the 27,300 area. Technically, strong bearish trending lines – SuperTrend (10. 2), 50-Day SMA -are weighing down the index.

In Singapore, investors are staying on the sidelines ahead of important corporate earnings. The Straits Times Index is consolidating within a narrow band of 3,200-3,300 points for a couple of weeks and we need earnings as a catalyst for increased volatility.

USD/CNH

By Margaret Yang in Singapore

 

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