DAILY FOREX REPORT FOR 04 JULY 2014

MARKET HEADLINES

China's yuan softens after reform, CNH market status in focus
China's onshore yuan softened slightly on Thursday after the policymakers announced they would completely liberalise the exchange rate in the retail market, allowing banks to offer over-the-counter customers any rate they choose. The liberalisation was welcomed as a positive step by players but given the strong influence the interbank market - still subject to restraint by the official midpoint - exercises over retail supply and demand, the move is not expected to have a dramatic near-term impact on the exchange rate. "It wasn't really clear what the intentions of the announcement were but my read is we are moving toward a more market-driven environment," said Robert Minikin, forex strategist for Standard Chartered in Hong Kong. The People's Bank of China (PBOC) set the official midpoint guidance rate at 6.1581 on Thursday morning, slightly weaker than Wednesday, and the spot rate followed, trading at 6.2146 per dollar at midday, down from 6.2106 at Wednesday's close. The spot rate was 0.92 per cent weaker than the fix, maintaining a trend that began in March after the PBOC shoved the yuan down dramatically in a move widely seen as a swipe at speculative hot money inflows. A consistently wide gap between the midpoint and the spot rate is seen by some as indicative of continued distortions in the midpoint fixing process. 

Rupee near 3-week high as foreign banks buy dollars
Rupee was trading at 59.57/58 after hitting 59.52, its highest level since June 13 and higher than the previous close of 59.6875/6975 as foreign banks continue to buy dollars on behalf of overseas investors. Foreign institutional investors bought shares worth $216.13 million on Wednesday, provisional exchange data shows. Local shares were up 0.3 per cent in early trade. Most Asian currencies strong against the dollar. Asian stocks hovered at a three-year high and the dollar slipped
early on Thursday after robust jobs data fuelled hopes that the US nonfarm payrolls report would point to momentum building in the economy.

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