PBOC governor says yuan fluctuations due to stronger dollar and external uncertainties

PBOC governor says yuan fluctuations due to stronger dollar and external uncertainties

China's central bank moved to soothe markets on Tuesday after the yuan dropped through the psychologically key 6.7 to the dollar mark, hitting its lowest in 11 months as anxieties over USA trade frictions deepened.

Major state-owned Chinese banks were seen swapping yuan for dollars in forwards and immediately selling them into the spot market to prop up the Chinese currency, four traders said.

Chinese currency and stock markets have been jittery ahead of a July 6 deadline for USA tariffs on $34 billion worth of Chinese goods that Beijing has said it would match with tariffs on US products.

The Hang Seng then edged back to end 1.4 percent lower.

"The market remains supported by a production outage in Libya and the overhang from recent United States. data which suggest U.S. supplies are running very tight", said Stephen Innes, head of Asia-Pacific trade at OANDA.

Qi Gao, emerging market Asia currency strategist at Scotiabank, said that while the yuan may consolidate at its current level before July 6, it will remain susceptible to the headlines and is unlikely to rebound markedly.

The Shenzhen Component Index closed 0.45 percent higher at 9,221.54 points. That statement, and comments by another central bank official earlier on Tuesday, are the first clear remarks on the currency from authorities since the yuan started weakening in mid-June.

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"The euro is getting a bit of a lift on the German data though the trade concerns will continue to dominate markets with the Fed minutes being the key data point", said Kenneth Broux, a currency strategist at Societe Generale in London. He said that the bank is closely watching the foreign exchange market's recent fluctuations due to a strengthening dollar and external uncertainties.

Officials in China, the epicenter of the global trade row, have warned the United States that the tit-for-tat tariffs on each others' goods will ultimately prove detrimental for American businesses and jobs.

The pair last traded at C$1.3115, its highest level in 2-1/2 weeks.

The dollar retreated 0.4 percent against a basket of currencies and the easing tensions in Germany helped the euro to gain 0.2 percent against the greenback.

MSCI's broad index of shares in Asia Pacific excluding Japan edged down by 0.69 percent, but it remained above the nine-month lows it touched last week. -China trade tensions may pose a risk. Short covering rallies should not be confused with trend reversals and provided traders continue to view escalating trade tensions will reduce the United States trade deficit thereby benefiting the dollar, gold will continue to remain out of favour.

Support: 6.6263 (session high), 6.6046 (previous day's low), 6.60 (psychological support).

Oil prices bounced back in early Asian trade on Tuesday, with Brent crude rising 0.41 percent to $77.30 per barrel and West Texas Intermediate (WTI) crude was up 0.32 percent to $73.94 a barrel.

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