Forex Comment May 15

Xi call for strengthened virus controls weighs on yuan 

Worries about future outweigh slightly improved economic numbers 

by Uwe Parpart
Xi call for strengthened virus controls weighs on yuan 

(ATF) Chinese President Xi Jinping reportedly told a politburo standing committee meeting on Thursday that provincial governments must strengthen prevention and controls to avoid a coronavirus resurgence. He stressed vigilance on imported cases.

China has a very long border with Russia, which has moved into second place behind the US in coronavirus infections. 

Both on the equities and FX fronts, potential "second wave" concerns outweighed somewhat improved April economic news. Industrial production rose 3.9% year-on-year after a drop of 1.1% in March. Retail sales "improved" to -7.5% from twice that drop in March. 

But those numbers are backward looking and investors are firmly focused on future prospects determined by the virus battle.

The CSI300 Index was down 0.32% at the 4pm close in Hong Kong.

CNY traded at 7.0984, weaker than central parity set at 7.0936 on Friday morning, itself a weak reading compared with the April average of 7.0686. CNH, the offshore CNY, stood at 7.1175.

Traders pointed out that US President Trump's reiteration that a US government pension fund cannot invest in Chinese securities also weighed down the yuan as did Trump's statement that he does not want to talk to President Xi at this point.

The US dollar lost ground in Asian trading as the late surge in US equities Thursday, while not impacting Asia much, led EU stocks to jump. US stock futures are up as well.

The DXY in response to the risk-on mood dropped by 0.26% to 100.2060. It would take a very good Friday and Wall Street for the dollar to slip below the 100 level.