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The Current Position of the Yuan

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Yuan
  • The Current Position of the Yuan

Investors across the globe have been keeping an eye on the Yuan owing to the tumultuous performance it has had in the past few years.

The Chinese currency has been on a downward trend, which has affected forex trading on various fronts. Being a big player in the global forex market, traders must gain a better understanding of the state of the Yuan and its outlook before trading on an online platform like CMC Markets. The latest news on the Asian currency is that the government may seek a new approach to maintain the stability of the currency.

A Different Stance

Speaking on Sunday, 5th March 2017 at the National People’s Congress, China’s Premier Li Keqiang said that the plan was to liberalise the renminbi exchange rate further. Keqiang was presenting the government work report, which included ‘maintaining the Yuan’s stable position in the world’s monetary system’ as one of its tasks. It is the first time a government report has contained this statement, which is different from the traditional ‘keeping the Yuan’s level reasonable and balanced’. Analysts speculate that this new wording in the report indicates that the Chinese government will be more open-minded about the Yuan’s move against the U.S dollar, not to mention a decrease in its involvement in the forex exchange market.

Causes for Concern

There have been indications that Beijing may take a different approach to its exchange rate policies in light of the rapid rate rise from the U.S. Fed Reserve. Any aggressive action from the Federal Reserve is expected to impact global currencies negatively, and the Yuan is in no position to deal with uncertainties at the moment. A second rate hike may not be too far away, following a statement by Fed Chair, Janet Yellen in mid-February that an interest hike should not take too long. She hinted that a rate increase might be appropriate when the Fed has its next meeting on March 14-15.

An increase U.S dollar value will put the renminbi under tremendous pressure. Compared to a few years ago, the Yuan is more dependent on the performance of the dollar; hence, the concern. U.S. and China interest differentials can cause capital flights, which is why the Chinese central bank has to act decisively. So far, the PBOC has not altered the benchmark interest rates or deposit reserve ratios for Chinese banks as it aims to keep monetary policy even- not too loose and not too tight.

Beijing is also worried about threats from President Trump to institute more protectionist measures, which are bound to result in trade wars between the two global market leaders. Political uncertainties in Europe as France, Germany and Holland head to elections are also huge concerns for Beijing. The possibility of ‘Black Swan’ results can have unfavourable consequences for China and other Asian markets. Not to forget the exit of Britain from the EU, which may not be smooth sailing.

The Future

There have been accusations from the U.S president that Beijing has been manipulating the Yuan. He claimed that the manipulation was aimed at increasing the competitiveness of Chinese exports. China has been trying to prop up the renminbi, which has not been easy. In 2 ½ years, the government dipped into its foreign exchange reserves to a tune of $1 trillion in an effort to strengthen the Yuan.

Financial experts such as Yu Yongding, a former adviser to the central bank, have been urging the government to let the currency devalue if the market wants it to. Vice-governor of the Chinese central bank, however, said that the government would never devalue the Yuan to promote exports. He added that China is responsible and will never stage a currency war.

chartDuring Sunday’s National People Congress, Keqiang stated that the government was aiming at a 6.5% economic growth for the year. In 2016, the rate of increase was 6.7%, higher than the targeted 6.5-7%. An improvement in China’s economic growth means good news for the Yuan; and consequently, for investors. Investors have come to view the Chinese currency as less appealing as its international status keeps falling.

The Chinese government is also focusing on keeping the Yuan stable as the country goes through a leadership transition later in the year. The latest government report also insisted that monetary policy will remain ‘neutral and prudent’. Investors only have to wait and see how the new approach to the stabilisation of the Yuan works out.

Is the CEO and Founder of Investors King Limited. He is a seasoned foreign exchange research analyst and a published author on Yahoo Finance, Business Insider, Nasdaq, Entrepreneur.com, Investorplace, and other prominent platforms. With over two decades of experience in global financial markets, Olukoya is well-recognized in the industry.

Naira

Naira Appreciates to N1,666 Per Dollar at FX Market, N1,704.11 at Parallel Market

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Naira Exchange Rates - Investors King

The Naira appreciated by 0.5 percent against the US Dollar in the Nigerian Autonomous Foreign Exchange Market (NAFEX) on Friday following an N8.77 rise to close at N1,666.72/$1 compared with Thursday’s closing rate of N1,675.49/$1 despite worsening supply in the market.

The daily supply of FX as measured by secondary data from FMDQ Securities Exchange Limited indicated that turnover fell by $72.41 million or 43.5 per cent to $94.20 million from $166.61 million.

However, the local currency slid on the Pound Sterling and the Euro in the final session. For the British currency, the local currency depreciated by N10.10 and closed at N2,157.25/£1 from N2,147.15/£1 while it closed at the rate of N1,814.79/€1, a slump of N23.43 against N1,791.36/€1 against the Euro.

Meanwhile, the Naira rose further by N7.66 against the American in the parallel market segment to close at N1,704.11 to the US Dollar compared to N1,711.77/$1 it closed on Thursday.

Also, the domestic currency extended its gain against the British currency during the final session as the Naira made a further appreciation of N16 to trade at N2,207.76/£1 from N2,223.76/£1 that it sold at the previous session and against the Euro, it appreciated N14.82 to close at N1,852.25/€1 versus the previous day’s rate of N1,867.07/€1.

The local currency gained a marginal N1.62 to close at N1,233.99 per Canadian Dollar, compared to Thursday’s N1,235.61 per CAD.

The Central Bank of Nigeria (CBN) at the recently concluded World Bank/IMF meetings held in Washington, DC last week said the foreign exchange market will not depend on the apex bank’s intervention for supply and stability.

This is evidenced by the stop of sales of Dollars to the market as it plans to improve supply organically without its intervention from time to time while maintaining balance in the market.

“While you might see us intervene from time to time, we are trying to ensure the market is not dependent on the intervention of the central bank.

“I think that we are looking at conditions that market return as much as possible to improve supply organically without the Central Bank having to put in money all the time,” the CBN deputy governor on economic policy, Mr Mohammed Abdullahi, disclosed.

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Naira

Naira Loses 2.7% on Dollar at NAFEX, Gains N6 to N1,711/$1 at Parallel Market

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New Naira Notes

The Naira fell by 2.7 percent on the US Dollar at the Nigerian Autonomous Foreign Exchange Market (NAFEX) to exchange at N1,675.49/$1 on Thursday, October 311 as the local currency depreciated despite a slight increase in supply.

In the official market, the domestic currency lost N44.32 on the American currency in the official market versus N1,631.17/$1, which it closed in the previous session on Wednesday.

In a turn of fortune, the Naira rose N6.66 against the greenback in the parallel market segment to close at N1,711.77 to the US Dollar compared to N1,718.43/$1 it closed on Wednesday.

Data showed a rise in supply as the turnover published on the FMDQ Group website stood at $166.61 million indicating that the session’s turnover jumped by 29.2 per cent, indicating a rise of $37.63 million compared to $128.98 million that was published in the last trading session.

Equally, the Naira weakened its value against the Pound Sterling in the official market by N3.75 to sell at N2,147.15/£1 compared with the preceding session’s N2,143.40/£1.

It followed the same path against the Euro, depreciating N9.29 to quote at N1,791.36/€1 versus midweek’s closing rate of N1,782.07/€1.

In a different outcome in the black market, the domestic currency headed up against the British currency during the Thursday session as the Naira made an appreciation of N10.86 to wrap the session at N2,223.76/£1 from N2,234.62/£1 that it sold at the previous session.

However, the Naira followed a different pattern against the Euro as it depreciated N12.51 to close at N1,867.07/€1 versus the previous day’s rate of N1,854.56/€1.

The local currency gained a marginal 9 Kobo to close at N1,235.61 per Canadian Dollar, compared to Wednesday’s N1,235.70 per CAD.

Investors King reports that the Nigerian macro environment is placing pressure on the FX market with latest data showing that there is a high money supply in the system complemented by a wider government budget deficit.

The Central Bank of Nigeria (CBN) revealed that Nigeria’s money supply often known as M3 grew 62.8 percent in the last one year to N109 trillion from N66.9 trillion in September 2023.

 

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Naira

Naira Declines Amid Dwindling FX Supply as Official Rate Nears N1,631 per Dollar

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Naira Exchange Rates - Investors King

The Naira depreciated against the US Dollar at both the official and parallel foreign exchange market segments on Wednesday, October 30.

The Naira dropped 0.04 per cent in the Nigerian Autonomous Foreign Exchange Market (NAFEX) The local currency lost 72 Kobo to close at N1,631.17/$1 at the official window.

According to data obtained from FMDQ Securities Exchange compared to N1,630.45/$1 published in the preceding session on Tuesday.

This happened as supply decreased at the FX market as secondary data showed that $128.98 million worth of turnover was recorded compared to the preceding session which $242.59 million was settled. This indicated a $113.61 million or 46.9 per cent slump.

In the black market, the Naira lost N4.08 against the greenback to close at N1,718.43 to the US Dollar compared to N1,714.35/$1 it closed on Thursday.

Meanwhile, the local currency appreciated against the Pound Sterling and the Euro in the midweek session for the week. For the British currency, the local currency appreciated by N18.57 and closed at N2,143.40/£1 from N2,161.97/£1 while it closed at the rate of N1,782.07/€1, a jump of N18.90 against N1,800.97/€1 against the Euro.

In a different outcome in the black market, the domestic currency headed south against the British currency during the midweek session as the Naira made a depreciation of N9.38 to wrap the session at N2,234.62/£1 from N2,225.24/£1 that it sold at the previous session

However, the Naira followed a different pattern against the Euro as it appreciated N15.38 to quote at N1,854.56/€1 versus the previous day’s rate of N1,856.79/€1.

The local currency dropped N2.31 to close at N1,235.70 per Canadian Dollar, compared to Tuesday’s N1,233.56 per CAD.

The supply challenge in the FX market comes as the Central Bank of Nigeria (CBN) continues to filter sales into the market alongside recommendations from the World Bank.

The US-headquartered bank in its latest report noted that permitting market participants to trade FX with more flexibility across time would also contribute to deepening the FX market, adding that the CBN should continue efforts towards deepening the official FX market.

This includes facilitating formal remittance inflows, allowing international oil companies to fully concentrate their FX sales in the official market, restoring intermediated market access to bureaux de change, and refraining from ad-hoc FX auctions.

“Allowing market participants to trade FX with more flexibility across time would also contribute to deepening the FX market,” the October report said.

 

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