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China Weakens Yuan for Sixth Straight Day

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  • China Weakens Yuan for Sixth Straight Day

China’s central bank guided the yuan lower Wednesday for the sixth trading session in a row, its longest losing streak since January.

The People’s Bank of China set the daily midpoint for the dollar-yuan pair at 6.7258, marking a 0.24% decline in the yuan from Tuesday’s midpoint. The PBOC maintains close control of the currency’s value onshore and allows the yuan to swing just 2% around the level it sets each day.

Wednesday’s fixing put the yuan at its lowest level against the dollar since September 2010. The PBOC set the yuan weaker for six straight trading sessions during a period that spans the Golden Week holiday in China. It marks the longest stretch of weaker yuan fixes since the eight sessions ended Jan. 7.

The yuan has fallen 0.7% so far this month, on track for the biggest monthly decline since June, according to Thomson Reuters data. Since Chinese markets were closed for the first week of October, that move has happened entirely in the past three days.

The latest bout of yuan weakness comes after the International Monetary Fund added the currency to its elite group of reserve currencies on Oct. 1. Traders and investors said the PBOC had an incentive to keep the yuan’s value fairly stable last month, ahead of the yuan’s inclusion in the IMF basket and as China hosted leaders of the world’s largest economies at the Group of 20 Summit in early September. The yuan rose 0.1% against the dollar in September.

To be sure, the dollar has advanced broadly in recent days as comments from U.S. Federal Reserve officials and economic data have boosted investors’ expectations for a U.S. rate increase this year. Higher interest rates tend to lift the value of a currency, as they attract investors seeking yield.

The Dollar Index, which measures the dollar against 16 other currencies, has gained 2% so far in October.

“The weak [yuan] fixing in the past few days is mostly driven by the strong dollar,” said Ying Gu, Asia rates and foreign-exchange strategist at J.P. Morgan.

Still, many strategists continue to expect the yuan to fall more this year because of domestic factors. China’s economy is slowing and capital continues to leave the country, both of which should put pressure on the yuan.

Jason Daw, head of emerging markets FX strategy at Société Générale, this week reiterated his call for investors to short the offshore yuan against the U.S. dollar, euro, Japanese yen and Australian dollar. Shorting a currency is a bet that it will fall. In such a trade, an investor typically borrows the yuan overnight in Hong Kong and swaps it for dollars, hoping to exchange the money back the next day after the yuan has declined.

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

Forex

Zenith Bank Joins Other Banks to Cap International Spend Limit at $100/Month

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Zenith Bank Caps International Spend Limit at $100 Per Month

Following persistent forex scarcity impacting the nation, Zenith Bank has joined other deposit money banks capping international spend limits.

In an e-mail to customers, the lender said “Please be informed that the monthly international spend limit for your Zenith Bank Naira Card has been reviewed to US$100 while the use of Zenith Bank Naira cards for international Automated Teller Machine cash withdrawals is still temporarily suspended.’

It added that this review is in response to change in Nigeria’s macroeconomic factors.

The bank, however, advised those with higher international spend requirements than the US$100 stipulated above to visit any Zenith branch and request a foreign currency debit or prepaid card “which are available in US Dollar, Pounds and Euro variants.”

This is coming a few weeks after UBA, GTBank, First Bank and others capped their international spend limits to $100 for similar reasons. However, Zenith’s decision was after the Central Bank of Nigeria commenced forex sale to the Bureau De Change Operators across the country.

 

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Nigeria’s Foreign Exchange Inflows Decline by 43.2% in May

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CBN Says Foreign Exchange Inflows Decline to $5.52bn in May

The total foreign exchange inflows into Nigeria in the month of May declined by 43.2 percent, according to the Central Bank of Nigeria’s report.

The report said the COVID-19 pandemic negatively impacted capital inflows during the month as the total foreign exchange inflows dropped to $5.52 billion.

It said “Inflows through the CBN and autonomous sources were negatively impacted.

“On a month-on-month basis, foreign exchange flows into the economy declined to $5.52bn in May 2020.

“The decline in inflow, relative to the level in April 2020, was attributed to the lower receipts from oil sources, which fell sharply by 55.2 per cent because of the continued fragility in global crude oil demand.

“Inflow through autonomous sources, particularly invisible purchases, declined by 7.0 per cent to $3.51bn, relative to the preceding month, while there was a 66.2 per cent fall in inflow through the CBN, which stood at $2.01bn in May 2020.”

However, foreign exchange outflows from the country declined by 23.9 percent to $2.50 billion in the month. Likely because of forex scarcity and the central bank forex rate adjustments that curbed outflows by foreign investors.

A break down of the report showed that outflow through the apex bank declined by 30.9 percent to $2.19 billion, below what was recorded in April.

But outflow through autonomous sources, mainly imports and Invisibles, rose by 152.2 percent to $0.32 billion. Higher than the amount reported for the month of April.

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ECOWAS Slows Down on Eco Launch, Says Now Adopting Gradual Approach

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ECOWAS Halts Eco Launch, Says New Launching Date Will Be Announced

The Economic Community of West African States (ECOWAS) on Tuesday said it has postponed the planned launch for Eco, its single currency.

In a communiqué issued at the end of the 57th Summit of the Heads of State and Government of ECOWAS held on Tuesday, member states agreed to adopt a gradual approach for the launching of Eco given changes in economic fundamentals of member states.

They said a new road map for the launching would be announced and that member states are exempted from compliance with the body’s convergence criteria in 2020. Again, suggesting the negative impacts of COVID-19 on member states have forced the body to adopt a new launching approach, especially with most member states not meeting convergence criteria before the pandemic.

The communique read, “Member states are to be exempted from compliance with the convergence criteria in 2020, while also developing a new macroeconomic convergence and stability pact among the ECOWAS member states.”

President Muhammadu Buhari, who attended the summit, warned that the whole project could face serious jeopardy unless member states complied with agreed processes of attaining the body’s collective goal.

Buhari also expressed concern over Francophone countries within the West African Economic and Monetary Union adopting Eco as a replacement for CFA Franc ahead of the rest of member states.

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