Chinese Yuan Falls On Lower Than Expected Reference Rate

- Yuan Falls On Lower Than Expected Reference Rate

  • [B]HK  St[/B][B]ocks Advance On Banking Shares, ICBC  Leads  Way[/B]

  • [B]Ind[/B][B]ustrial[/B][B] Production Falls In Singapore[/B]

  • [B]Asia[/B][B]n  St[/B][B]ocks Markets Advance For The  Session[/B]

The Chinese Yuan pulled back a bit as the country’s central bank fixed the reference rate to a weaker exchange compared to yesterday’s close. The move suggests to the market that policymakers are hoping to contain the value of the underlying currency, moving it in line with other Asia regional currencies. Incidentally, the decision is also a bold move as it conveys what everyone is thinking: China will move on its own timetable and not at the request of the world’s. However, policy changes may come about as senior officials are set to visit Washington May 22-24 for the second round of talks with US Treasury Secretary Henry Paulson. In attendance will be Wu Yi, China’s senior trade official. According to the China Foreign Exchange Trade System, the underlying currency fell to 7.7263 in the overnight session.

Stocks in Hong Kong advanced on the day, led by gains in the banking sector. Notably, shares were led higher on gains in ICBC, Industrial & Commercial Bank of China Ltd. China’s first ranked lender added to positive market sentiment after reporting first quarter profit that well exceeded analyst estimates. For the first three months, posted profit was 18.7 billion yuan as demand for loans coupled with rising stock market valuations in lifting the figure. Shares of ICBC advanced 1.2 percent on the day, closing at HK$4.36. Cnooc sharers were also bid throughout the day as crude contracts continued higher during London. Shares of China’s biggest offshore oil producer rose 5 cents to HK$6.81. As a result, the Hang Seng index was able to add an impressive 130.51 points to close at 20,667.29.

Industrial Production in Singapore surprisingly declined in the month of March, for the first time in well over two years. According to the release, manufacturing in the Asian economy, declined 2.9 percent in the year on year comparison versus a consensus estimate pitting the figure to rise by 3.3 percent. Subsequently, the monthly comparison plunged by 9.3 percent, a total reversal of the 9.4 percent growth in the previous month. Unfortunately, manufacturing weakness will likely aid economists in lowering growth forecasts, some of which have already been set from the beginning of the year. Notably, pharmaceutical output plunged by 25.8 percent in the month, continuing on the recent longer term downtrend seen in the past quarter. Ultimately, the negative report weighed on the currency, helping to lift the pair through to the 1.5170 figure.

Stock markets in Singapore were unfazed by the news, joining other regional stock markets, as investors swept in to break a two day downstreak. This time around developers led advancers on the day with Keppel Land Ltd. helping to boost overall market sentiment. The company reported first quarter profit that vaulted by a whopping 72 percent to S$62.5 million on sales in the country. Shares of Keppel climbed 50 cents, jumping 5.9 percent to S$9. Additionally benefiting from higher earnings were shares in Venture Corp. The country’s biggest electronics manufacturer advanced after it was announced that earnings for the quarter topped consensus estimates. First quarter profit advanced by 43 percent to S$49.4 million, with most of the rise attributed to the contribution of the company’s recent purchase of GES International Ltd.

Technically Speaking

Singapore Dollar Advances Lower - The Singapore dollar continued to weaken on the day, remaining well above the 1.5150 figure in the overnight. Now trading at 1.5152 at the New York close, the price is set for a retrace ahead of the weekend. Momentum indicators are confirming impending downside, with a steep MACD divergence. With resistance at the 1.5163 resistance trendline seller are likely to take the pair lower through barriers at even figures (1.5140-1.5130). Steep barriers at the 1.5130 (50/100/200 hMA) are set to cap any momentum, with a break lower targeting the 1.5100 figure.

USDHKD Takes Out 7.8200 - Dipping back early in the session, the USDHKD surged well ahead of the 7.8200 figure in the overnight. However, with momentum now waning, as the pair consolidates, momentum indicators are suggesting profit taking heading into the Asian session. A death cross formation in stochastic is mixing well with a slow divergence in the MACD histogram. As a result, first up on Hong Kong dollar strength will be the 7.8200 psychological figure, coinciding with the 7.8190 (50 hMA) support barrier. A break lower will keep the selling tone maintained till the 7.8150 (200 hMA) level, where bids are likely to emerge.