Credit: REUTERS/THOMAS WHITEJuly 17 (Reuters) - China's yuan retreated early Friday as the stock market was buffeted by waves of domestic and external stress, pushing back Thursday's tide of positive economic data . Yet the yuan may remain resilient, partly due to the intrinsic weakness of a zero-yielding dollar, but also because of a growing sense that Beijing favours a strong currency.
The Shanghai Composite index tanked 4.5% Thursday but the yuan ended flat versus the dollar after an initial loss of 0.2%. Crucially, the recovery validated technical signals suggesting the yuan's recent rally is not over. USD/CNY could stay inside its daily Bollinger downtrend channel, which now caps at 7.0005.
Rising diplomatic tensions and a series of punitive measures by democratic governmentshave prompted some foreign stock investors to clear the decks. Further sanctions are possible in response to China's military aggression across disputed borders and alleged compromising of global communication network hardware .
China's central bank slowing its pace of monetary policy easing and authorities advocating prudence in equity trading - to cool an exuberant market ironically sparked by regulators' bullish comments - have also tempered investor enthusiasm . But Beijing has yet to comment on the yuan's 0.9% gain this month, which could be a case of 'no news is good news'.
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(Ewen Chew is a Reuters market analyst. The views expressed are his own.)
((ewen.chew@thomsonreuters.com))
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