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After stellar performances since June 29, Asian and Chinese stocks took a breather on Tuesday. The Shanghai Shenzhen CSI 300 Index closed in positive territory, up 0.60% on the day and up 14% since end-June.

But Tokyo and Hong Kong stocks were down on the day and the MSCI Asia Pacific lost 0.5%. Europe is following suite and so are US futures, down in the 1% range.

In line with the onset of risk-off sentiment, the US dollar came off morning lows of 96.6000 on the DXY (dollar index) and at 7pm HK time traded at 96.9490.

But the Chinese currencies are breaking the trend and are retaining their strength. 

The People’s Bank of China set central yuan parity at 7.0310 this morning, strongest since April 13, and in the course of the Asian trading day, the onshore yuan (CNY) rose further to stand at 7.0229 at 7pm. The offshore CNH at one point strengthened to 6.9966 and now trades at 7.0191.

The Hong Kong dollar (HKD) remains flush up against its upper limit of 7.7500 against the US dollar.

These currency rates tell me that the lackluster Asian and Chinese stock performance is most likely temporary. The outperformance of the Chinese economy over the past two months continues, a fact once again underlined by the lower-than-expected German industrial production index for May.

The strength of the yuan, in particular, reflects rapid Chinese economic recovery.

Based on this, I change my forecast range for the July period from the 7.05-7.10 range to 7.02-7.07.

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This report appeared first on Asia Times Financial.