Chinese yuan likely to trade with strengthening bias ahead of major upcoming events - Scotiabank

In July, China’s foreign reserves had risen for a sixth consecutive month. This was partially because of the plunged outbound direct investment in 2017. The Ministry of Commerce stated on Thursday that China would reinforce inspection on authenticity to curb “irrational and fraud” outbound direct investment, which might further rebound the country’s external balance and strengthen the yuan, noted Scotiabank in a research report.

The CFETS RMB Index has been set a bit below the 94 level recently after consolidating around th 92 mark for a period of time. The yuan is likely to trade with a strengthening bias before the upcoming major events including the ruling party’s 19th national congress, US Treasury Department’s semi-annual FX policy report and U.S. President Donald Trump’s China visit.

Moreover, the Chinese yuan has been running a tight positive correlation with the EUR as it is managed against a basket of currencies such as the latter with a marked weighting, stated Scotiabank. If the European Central Bank President Mario Draghi refrains from delivering a new policy message hinting tapering of QE at the Jackson Hole Symposium on Saturday, it would weaken the euro and boost the DXY Index.

“In this scenario, we reckon there would be a better level for short dollar/yuan, particularly if we take into account ongoing US political turmoil and the debt ceiling matter”, added Scotiabank.

At 15:00 GMT the FxWirePro's Hourly Strength Index of Chinese yuan was highly bullish at 143.496, while the FxWirePro's Hourly Strength Index of US Dollar was highly bearish at -154.838. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

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