Asia EM Express: Concerns over China's property sector hurt the yuan

FXStreet (Łódź) - Chinese stocks slumped on Wednesday following the default of the Zhejiang Xingrun Real Estate company, which was unable to meet its debt payments amounting to 3.5 billion yuan. Chinese shares dropped on fears of more bankruptcies in the property sector, which is the main driver of the country's economy. The yuan fell close to a 11-month low.

The Shanghai Composite Index declined 0.94% to 2,021.73 and Hong Kong's Hang Seng Index fell 0.2% to 21,549.49 points. The PBoC reduced its reference rate of 0.02% to 6.1351 against the dollar, the lowest since December 3.

Meanwhile, Thailand has lifted the state of emergency in Bangkok and the surrounding areas, introduced two months ago when violent anti-government protests broke out. As the rallies had begun losing steam and tourism had been suffering at peak season due to the restrictions, the Thai authorities decided to end the emergency.

"The cancellation is to build confidence in the economy and the tourism sector," Prime Minister Yingluck Shinawatra told reporters on Tuesday. The baht jumped 0.37% on the news.

Tim Condon from ING comments: “The 7.8% stock market rally and the 2.8% appreciation of the Baht since the February 2 elections reinforces our view that most people aren’t invested in who prevails in the political fight, they just want it to end. We consider visibility too low for comfort. We recently revised our yearend forecast for the policy rate to 1.75%.”

Economic data

The Bank of Korea released Producer Price Index data for February on Tuesday. Year-on-year PPI fell 0.9%, down from the 0.3% decline recorded the previous month. On a monthly basis PPI remained flat in February, after growing 0.3% in January.

Technicals

The yuan fell below 6.20 against the dollar for the first time since April 2013 on the concerns with Chinese developers' problems.

The daily FXStreet Trend Index for USD/CNY was slightly bullish, with the OB/OS Index extremely overbought. RSI was at 80.3255 at the last close. Daily 2-StDev Volatility Bandwidth was shrinking at 278 pips, with ATR (14) expanding at 159 pips. The 1D 200 SMA is at 6.1040, while the 1D 20 EMA at 6.1325.

The Thai baht on the other hand rose to a three month high of 32.16 following the government's decision to lift the state of emergency.

The daily FXStreet Trend Index for USD/THB was slightly bearish, with the OB/OS Index oversold. RSI was neutral at 30.2641 at the last close.