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Chinese Yuan Strengthens on PBoC Easing Reports, Industrial Profits Gains

July 27, 2020 at 14:10 by Andrew Moran

Many 100 CNY notesThe Chinese yuan gained against some of its key currency manipulators to kick off the trading week. The yuan is looking to break below the seven mark against the US dollar on news that the central bank is reportedly keeping its monetary stimulus unchanged due to a stronger-than-expected economic recovery. The yuan is also looking to extend its momentum on additional data on Monday.

On Friday, Reuters published a report that suggested the People’s Bank of China (PBoC) would not ease monetary policy any further to support the world’s second-largest economy. Policymakers believe that its suite of tools is sufficient, especially because the data has been better than what they had been anticipated. Officials are concerned that if the PBoC becomes any more aggressive that it could trigger a debt crisis and another housing bubble just a few years after the last one popped.

This comes days after the PBoC revealed that it is unlikely to engage in any more stimulus or relief efforts in the second half of 2020.

That said, sources tell the newswire it will be prepared to pull the trigger on any measures in the event of an intensifying US-China dispute and global economic uncertainty. Beijing and Washington have closed their respective consulates over the past week, while the COVID-19 pandemic continues to produce uncertainty throughout the globe.

On the monetary front, the PBoC skipped its second consecutive open market operations facility through reverse repurchasing agreements. In an online statement, officials said they believed the banking system maintained ample liquidity levels, although $29 billion of reverse repos matured.

According to a separate announcement from the PBoC, outstanding loans given to the country’s micro-credit companies fell $3.56 billion to $126.4 billion last month. The federal government has tightened regulations for the sector in recent weeks since it targets small businesses and low-income households.

Meanwhile, the China Development Bank (CDB) is reportedly planning to auction green bonds this week. Reports suggest the institution will sell three-year green bonds worth a total of $1.43 billion. Half will take place in the interbank market and the other will be issued in exchange markets.

The National Bureau of Statistics (NBS) data confirmed that profits earned by industrial companies tumbled by 12.8% year-to-date in June, an improvement from the 19.3% plunge in the first five months of 2020.

The USD/CNY currency pair tumbled 0.21% to 7.0029, from an opening of 7.0173, at 14:02 GMT on Monday. The EUR/CNY advanced 0.65% to 8.2330, from an opening of 8.1797.

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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