Forex Comment May 13

Yuan hurt by new China coronavirus clusters

Bold warning from US virus expert also weighs on markets

by Uwe Parpart
Yuan hurt by new coronavirus China clusters

(ATF) Virus news still dominates economic-financial news.

We saw that on Tuesday when US chief scientific adviser on the coronavirus crisis Anthony Fauci told a Senate hearing that rapid opening carries strong risks, US equities tanked.

We saw it again in Asian trading Wednesday when China announced that clusters of new infections had been identified in three cities across the northeastern provinces of Jilin and Liaoning bordering North Korea.

The total of 22 new infections is the largest such total in China in more than a month and has led to tight new restrictions.

The bellwether Tencent stock took a roundtrip on combined news of better-than-expected 1Q earnings (up 26%) and renewed virus fears. But it was with the yuan that those fears showed more explicitly.

The People’s Bank of China (PBoC) set yuan parity Wednesday morning at 7.0875, well up from Tuesday; but at 4pm HK time, CNY touched 7.0958 and has since then traded sideways. CNH, the offshore CNY, signaled further weakness and traded at 7.1071 at 6pm.

A measure of the US dollar (DXY) fluctuated between 100.08 and 99.90 in today's Asian trading and is awaiting signals from the US. While EU stocks are significantly down at 6pm, US futures are pointing up and may weaken the USD as trading movers to the US. 

Dollar strength is not what's pushing down the yuan. Bad virus news is today's culprit. An additional factor is a report that Donald Trump is no longer just weighing a ban on US government pension fund investment in Chinese equities, but has made a firm determination to do so.