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Asian Shares Mixed as Focus Remains on Yuan Midpoint

James Hyerczyk

Asia Pacific shares are trading mixed on Wednesday as investors continue to digest the uncertainty over escalating tensions between the United States and China, and the fluctuations in the Chinese Yuan. In other news, the Reserve Bank of New Zealand surprised the markets by slashing its official cash rate by 50 basis points, to an all-time low of 1%.

At 06:15 GMT, Japan’s Nikkei 225 Index is trading 20520.93, down 64.38 or -0.31%. Hong Kong’s Hang Seng Index is at 25954.17, down 22.07 or -0.08% and South Korea’s KOSPI Index is trading 1914.00, down 3.50 or -0.18%.

China’s Shanghai Index is at 2781.94, up 4.38 or +0.16% and Australia’s S&P/ASX 200 Index is trading 6524.50, up 46.40 or 0.72%.

PBOC Sets Official Midpoint Reference

The People’s Bank of China (PBOC) set the official midpoint reference for the Yuan at 6.9996, two days after Washington label Beijing a currency manipulator.

A Reuters estimate had predicted that the PBOC would fix the Yuan at 6.9994 against the dollar on Wednesday. On Tuesday, the PBOC set the Yuan fixing at 6.9683, which was the weakest reference point since May 20, 2008, according to Reuters.

“The timing of the move beyond 7.00 is clearly not a coincidence and may have a political dimension,” S&P Global Ratings said in a report published Wednesday.

“While the timing may raise concerns that big currency policy changes are afoot, so far, we have not seen any evidence that the overall policy framework has changed,” economists at S&P noted.

The implications for macroeconomic policies will be limited “so long as China avoids destabilizing capital outflow,” S&P said.

Xi Jinping Sends Message to Trump

A guest on CNBC’s “Street Signs” on Wednesday had an interesting take on China allowing the Yuan to depreciate through the key level of 7 to the Dollar.

“The decision by (Chinese President) Xi Jinping to allow the (Yuan) to dip a little bit is the Chinese equivalent of a tweet,” Daniel Russel, former assistant secretary of state for East Asian and Pacific Affairs said.

“It’s a signal to the U.S., it’s a signal to Donald Trump. It says:  “Hey if you want to fight you’re gonna take a few punches,” Russel added. “China’s not gonna rollover, China’s a big country, a big economy and it politically simply won’t allow itself to be bullied.”

Reserve Bank of New Zealand Shocks Economists

The New Zealand Dollar plunged on Wednesday after the RBNZ surprisingly cut interest rates by half a percent – a move which no economist forecast.

The RBNZ’s official cash rate target is now 1 percent.

The Australian ASX/200 Index rallied sharply higher on the news because it likely means the Reserve Bank of Australia will follow suit, as it did with rate cuts earlier this year.

This article was originally posted on FX Empire

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