SHANGHAI, Feb 25: The People’s Bank of China attempted to guide the yuan into weaker territory on Monday but the spot market edged up slightly nevertheless in the morning session, ignoring the release of a economic data showing a loss of momentum in China’s manufacturing sector.
Global currency markets are increasingly long on dollars, and the dollar index, which measures the dollar against a basket of currencies dominated by the euro, has been rallying since early February; it is now at its highest level since Aug. 2012.
But the domestic yuan market, which is isolated to a degree from short-term currency trends, has remains relatively bullish on the yuan, keeping the currency near all-time highs against the dollar.
Traders said part of the reason for the increasing divergence between the spot rate and the official midpoint (against which the exchange rate is allowed to sink or rise by 1 percent in either direction) is central bankers desire to signal traders that it wants to keep the currency stable while other Asian economies – Japan in particular – are seeing their currencies devalue against the dollar.
A strategist at a foreign bank in Shanghai said that the market was relatively balanced in morning trade. Volumes were moderate at $5.4 billion worth of transactions by midday.
The onshore spot yuan market at a glance:
Item Current Previous Change
(pct)
PBOC midpoint 6.2892 6.2871 -0.03
Spot yuan 6.2340 6.2351 +0.02
Divergence from midpoint*(pct) -0.88
Spot change ytd (pct) -0.06
Spot change since 2005 +32.76
Revaluation
*Divergence of the dollar/yuan exchange rate. Negative number indicates that spot yuan is trading stronger than the midpoint. The People’s Bank of China (PBOC) allows the exchange rate to rise or fall 1 percent from official midpoint rate it sets each morning.
OFFSHORE CNH MARKET
A burst of news this weekend suggests regulators may be accelerating the pace of reform. The U.K. And China are going ahead with discussions to set up an FX swap line which should boost the confidence of corporates looking to invoice more of their business with China in RMB, and regulators also announced they will relax restrictions on the Renminbi Qualified Institutional Investor Programme (RQFII) to allow more funds to be invested in equities, as opposed to bonds.
In the Hong Kong market, the premium between the offshore yuan and the onshore yuan has disappeared after months of sustained optimism. The offshore market is not bound by the official midpoint and is therefore able to express a greater degree of bullish or bearish sentiment on an intraday basis.
The one-year non-deliverable forward contract , considered an imperfect indicator of expectations, continues to trade at prices implying depreciation over the next twelve months.
(AGENCIES)
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