SHANGHAI, June 11: China’s yuan traded farther from the central bank’s daily fixing than ever before on Monday, as policymakers appear increasingly content to tolerate a moderately weak currency so long as it avoids sharp swings.
Spot yuan touched an intraday low of 6.3693 in the first hour of trading, some 0.83 percent weaker than the central bank’s midpoint of 6.3169, surpassing the divergence seen on Friday.
The central bank’s midpoint was 19 pips stronger than Friday’s fix, prompted by a dollar index that rose in early Asian trade. But some traders were surprised that the central bank declined to set an even stronger midpoint.
‘Actually, non-dollar currencies rose quite a lot. With the small change in the midpoint price, it further signals an intention to keep the exchange rate steady, to not encourage significant appreciation expectations,’ said a trader at a joint-stock bank in Shanghai.
By midday, the yuan had risen to 6.3671, 34 pips stronger
than Friday’s close.
Traders said that China’s trade data released over the weekend, which showed both exports and imports growing faster
than expected – and an increase in the trade surplus – had little impact on market demand.
China’s inflation, industrial output and retail sales all
flagged in May for a second straight month of sluggish growth
that galvanised the central bank to cut interest rates last week for the first time since the 2008/09 global financial crisis.
‘Looking at order flow, dollar buying is pretty large. (Recent yuan weakness) isn’t due to expectations. Demand for dollars really is pretty large,’ said a different trader at a joint-stock bank in Shanghai.’
The yuan traded between 6.35 and 6.37 last week after weakening about 1 percent in May, its worst monthly performance on record.
The People’s Bank of China doubled the yuan’s daily allowable trading band in mid-April to 1.0 percent from 0.5 percent. Since the change, traders increasingly see market factors – rather than the fixing – driving the exchange rate.
‘Since the widening of the trading band, day-to-day continuity has increased. Looking at the previous day’s closing price compared to the current day’s opening price, the difference isn’t large,’ said a trader at a different shareholding bank in Shanghai.
Trade data released on Sunday showed that exports rose 15.3 percent in May from a year earlier, a much stronger rate than+ market expectations of a 6.8 percent increase, and up from+ April’s rise of 4.9 percent.
Annual growth of 12.7 percent in imports last month also exceeded expectations of a 5.0 percent increase in a Reuters poll, and were well above the 0.3 percent annual rise in April.
But trade with Europe rose only 1.3 percent, compared to 12 percent for the U.S. A weak euro over the last month has caused the yuan to rise 3.5 percent rise against the euro since the end of April.
In the offshore market, one-year non-deliverable forwards
Were trading at 6.4130, implying 0.72 percent depreciation over the next year, compared to 0.80 percent implied at Friday’s close.
(agencies)
Follow our WhatsApp channel