This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
Although the Chinese “National Team” looked keen to quell potential fears over a currency devaluation today, it did not seem to encourage the Chinese equity markets.
After a tentative open in Japan and Australia, a wave of selling hit markets after 11.00am AEDT just ahead of the opening of the Chinese futures market at 12.15pm AEDT. The CNY midpoint fix weakened the currency even further today seeing an initial spike in the offshore CNH rate and heightening tensions in equity markets that we could see another CNY devaluation. However, a wave of strong buying of the CNH directly in the FX market (allegedly by a large Chinese bank) came in at 12.40pm AEDT to stem the weakening of the currency. The CSI 300 and Shanghai Composite also opened in positive territory. However, as Mainland markets headed into the red and H-shares also started to see a pickup in selling, fears of a “Black Monday Redux” did begin to grip Asian markets.
One theory behind the strengthening of the CNH may be the CNY’s imminent announcement of its inclusion in the IMF’s Standard Drawing Rights (SDR) basket. Given this, the Chinese government may be hoping to see a wave of buying of the CNY and if the currency is weakening there would seemingly be very few FX portfolio managers who would be keen to see immediate losses on their CNY purchases.