Yuan investors are facing a funding squeeze, escalation of capital controls and mixed economic data, said Stephen Innes, senior trader at Oanda.
“Last week’s trade data tempered the market outlook on China. I think global uncertainty will continue to weigh on China trade and the potential for a trade war between US and China is a possibility, which points to further risk for China on the trade front,” he said.
China reported a 7.7 per cent year-on-year drop in exports and a 5.5 per cent decrease in imports for the full year 2016. The export drop was the worst since 2009.
“China still wants an orderly depreciation of the yuan to offset mounting trade uncertainty, and while I think the yuan depreciation will likely continue post-Lunar New Year, fears of more funding squeeze continue to plague the market and there’s simply less appetite for the short yuan trade at this juncture,” Innes said.
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