China’s currency on track for best week in 10 months

China’s currency on track for best week in 10 months

Export growth and rising appetite for Chinese debt help fuel renminbi rally

China’s currency was on track for its best week in 10 months, while most leading Asia-Pacific bourses climbed following a poor showing on Wall Street.

The onshore-traded renminbi firmed 0.1 per cent to Rmb6.7551 per dollar on Friday, taking the currency’s gains to about 1.2 per cent this week and putting it on course for its biggest weekly rise since November 2019.

The Chinese currency has rallied in recent months as export growth and investor appetite for onshore debt have sent flows of dollars into the country. The rise in the renminbi, which has come during a period of weakness for the greenback, means the currency is heading for its best quarter on record.

“With China on course for a more pronounced recovery than elsewhere, its external position the strongest in a decade, and onshore yields unusually attractive by global standards, there is still room for further gains,” wrote Julian Evans-Pritchard, a China economist at Capital Economics.

Encouraging data also came out of the UK on Friday, as retail sales in August rose 0.8 per cent on a monthly basis, slightly beating analysts’ expectations. In July sales overtook their pre-pandemic level to rise year on year, a trend that continued into August with a 2.8 per cent annual increase.

“Retail sales plausibly will remain above last year’s average in the remaining months of this year, as Covid-19 appears to have triggered a rotation away from spending on services towards goods,” said Samuel Tombs, chief UK economist at Pantheon Macroeconomics.

But households would save more of their incomes than they did last year, he said, meaning “a sustained V-shaped recovery in households’ spending is out of reach”.

European equities were broadly flat by mid-morning, reversing earlier losses. Investors weighed accommodative monetary policy against renewed concerns over coronavirus and the heightened risk of a no-deal Brexit.

The pound rose 0.1 per cent against the dollar to $1.2984, stabilising after a choppy session on Thursday. Sterling briefly tumbled after the Bank of England said it was examining how a negative interest rate “could be implemented effectively”.

“This is a clear signal that the [monetary policy committee] intends to use this tool,” said Brian Hilliard, chief UK economist at Société Générale.

Mr Hilliard said the central bank could deploy negative rates in early 2021 “in reaction to the shock following the move to trading under [World Trade Organization] rules after the failure . . . for the trade talks with the EU”.

Futures markets tipped US stocks to inch down by 0.1 per cent when trading begins later in the day. On Thursday, Wall Street’s S&P 500 fell 0.8 per cent while the Nasdaq Composite shed 1.3 per cent as shares in big technology companies dropped.

“Stocks remain technically overbought in the short term and vulnerable to a further correction,” said analysts at BCA Research. Investors should pivot into cheaper areas of the stock market, such as financials, non-US stocks, and value stocks, they added.

In the Asia-Pacific region, mainland China’s CSI 300 index ended the day 2.1 per cent higher while Hong Kong’s Hang Seng climbed 0.6 per cent. Japan’s Topix index closed up 0.5 per cent while Australia’s S&P/ASX 200 shed 0.3 per cent.

Camilla Hodgson in London and Hudson Lockett in Hong Kong

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