Chinese Yuan held in check by weaker median stance, eyes on PBOC

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SHANGHAI: The Chinese yuan was little changed on Wednesday and remained within a narrow trading range, after the central bank guided the currency lower amid continued speculation on the appreciation that authorities will tolerate.

The yuan is at its highest for 3 years. It has risen about 1.4% in the past four weeks and posted its best monthly performance in May since last November.

The People’s Bank of China pegged the median rate at 6.3773 per dollar before the market opened, 201 pips lower than the previous patch of 6.3572.

The spot market opened at 6.3805 per dollar and changed hands at 6.3825 by noon, unchanged from the close of the previous session.

The offshore yuan was trading at 6.3825 to the dollar.

“We expect the Chinese yuan to likely remain well supported due to strong export performance, a large trade surplus and a continued inflow of capital into Chinese financial markets for both tactical and structural factors.” said Chaoping Zhu, global markets strategist at JP Morgan Asset Management. .

“The PBOC may choose to dampen the appreciation momentum from time to time, but a stronger Chinese yuan has its advantages in keeping import prices low and encouraging international capital in Chinese markets.”

Many Chinese policymakers have recently warned market participants against betting on unilateral currency moves, and the PBOC this week raised reserve ratios on foreign currency deposits.

“It is possible that they (the PBOC) need to intervene more strongly in order to stabilize the currency and reduce the pace of appreciation. While the trajectory is clear, I think the problem is that they are not on track. ‘comfortable with the speed at which it has appreciated,’ said Carlos Casanova, senior economist for Asia at Union Bancaire Privée in Hong Kong.

A mountain of dollars on deposit in China has become so large that banks are struggling to lend change, and traders say it poses a risk to official efforts to control the yuan’s rapid rise.

The market reaction to the latest headlines on Sino-US relations has been largely subdued.

Chinese Vice Premier Liu He exchanged views with US Treasury Secretary Janet Yellen on issues of mutual “concern” during his second virtual call in a week with senior economic and trade officials from the United States. US administration Biden.

The dollar held on to small gains from Wednesday night, coming back from an almost five-month low against its major peers, as a recovery in U.S. manufacturing held bets on for a faster normalization of Federal Reserve policy.

The Thomson Reuters / HKEX Global CNH Index, which tracks the offshore yuan against a basket of currencies daily, stood at 97.84, lower than the previous day’s 97.88.

The Global Dollar Index fell to 89.899 from the previous close of 89.906.

One-year offshore undeliverable futures (NDF), considered the best available indicator of forward-looking market expectations for the value of the yuan, traded at 6.5375, 2.45% from the midpoint.

One-year NDFs are set based on the midpoint, not the spot rate.

The yuan market at 03:34 GMT:

PLACE ON LAND:

Item Current previous change

PBOC midpoint 6.3773 6.3572 -0.32%

Spot yuan 6.3842 6.3825 -0.03%

0.11 percent divergence

middle*

Spot change since the start of the year 2.26%

One-off change since 2005 29.64%

revaluation

Key indexes:

Item Current previous change

Thomson 97.84 97.88 0.0

Reuters / HKEX

CNH index

Dollar index 89.899 89.906 0.0

* Divergence in dollar / yuan exchange rate. A negative number indicates that the spot yuan is trading stronger than the midpoint. The People’s Bank of China (PBOC) allows the exchange rate to rise or fall 2% from the official median rate it sets each morning.

CNH OFFSHORE MARKET

Instrument current difference

down

Offshore spot yuan * 6.3825 0.03%

Offshore 6.5375 -2.45 percent

not deliverable

before **

* Premium for the offshore spot on onshore

** The figure reflects the difference from the official midpoint of the PBOC, as undeliverable futures are settled relative to the midpoint.

(Reporting by Luoyan Liu, Samuel Shen and Andrew Galbraith; Editing by Kim Coghill)



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