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Chinese Yuan Slips As All Eyes on Auction of Special Treasury Bonds

June 15, 2020 at 15:51 by Andrew Moran

A mix of 1-yuan and 5-yuan notesThe Chinese yuan is slightly weakening ahead of Beijing’s auction of one trillion yuan ($141 billion) in special treasury bonds to help cover the cost of combating the coronavirus pandemic. Investors are all eyes on the event to see how it would impact market liquidity. Mixed economic data are also affecting the yuan’s performance against currency rivals to start the trading week.

The Ministry of Finance will kick off the auction on Monday, starting with 50 billion yuan of five-year bonds and 50 billion yuan of seven-year bonds. It is being reported that 70% of the specialty treasury bonds will come with a ten-year maturity, and 20% will have a maturity of five years. The rest will be for seven years. The sales of these bonds will be finished by the end of July.

Overall, the Chinese government plans to sell $141 billion in bonds after announcing massive stimulus programs to help offset the negative effects of the public health crisis this year.

On Monday, a plethora of economic indicators were also published.

In May, industrial production rose at an annualized rate of 4.4%, falling short of the median estimate of 5%. Despite improving numbers, the figures suggest that various parts of the world’s second-largest economy are struggling to expand at a rapid pace.

Last month, retail sales slumped 2.8% year-on-year, which comes in slightly worse than the market forecast of a 2% drop. The biggest declines were seen in crude oil, jewelry, and apparel.

Housing prices missed economists’ projections, rising at an annualized rate of 4.9% in May. This is the slowest increase since May 2018 as the COVID-19 outbreak spooked homebuyers and speculators.

Year-to-date fixed asset investment tumbled 6.3% to $2.1 trillion, and this is worse than the expectation of a 5.9% decrease. Both private and public investments fell sharply by 9.6% and 1.9%, respectively.

According to the People’s Bank of China (PBoC), the nation’s outstanding foreign exchange funds continued their descent in May, slipping to $2.99 trillion. But its forex reserves did jump from $3.0915 trillion to $3.102 trillion at the end of last month.

The USD/CNY currency pair rose 0.1% to 7.0908, from an opening of 7.0834, at 15:46 GMT on Monday. The EUR/CNY advanced 0.18% to 7.9874, from an opening of 7.9734.

If you have any questions, comments, or opinions regarding the Chinese Yuan, feel free to post them using the commentary form below.

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