SHANGHAI, Mar 8: The yuan rose against the dollar on Friday after the central bank set the official midpoint guidance at its highest rate since mid-January.
Morning volumes were strong at more than $5 billion but volatility was negligible, with the spot price opening and closing out the morning session at 6.2148 per dollar.
The spot rate continues to trade near the strong side of the intra-day limit, around 0.9 percent stronger than the midpoint, as it has since November, implying that the central bank continues to hold back the market with an eye on other Asian currencies.
The dollar index slid in overnight trade, but the dollar is trading at its highest level against the yen since August 2009, and traders say the central bank is increasingly eyeing the position of the yen and other Asian currencies when pricing its daily midpoint.
Traders and analysts pointed out that conflicting forces are conspiring to muddle sentiment; some believe the yuan is at a peak from which it is preparing to slide, while others believe the yuan has room for even more appreciation.
On the depreciation side, the tightening of liquidity in the offshore yuan (CNH) market and the narrowing of the offshore/onshore premium suggests that foreign money is no longer betting on appreciation. The offshore non-deliverable forward (NDF) continues to forecast depreciation – although few believe the NDF market is still a reliable indicator of expectations.
At the same time, comments from regulators and other officials indicate that China is signalling it may allow depreciation the yuan, either passively or actively, to counter further slides in other Asian currencies.
Supporting the case for appreciation is the fact that the spot market continues to consistently trade near its strongest legally allowed intra-day rate, that foreign hot money appears to have returned in January, and that February’s exports were unexpectedly strong. (AGENCIES)
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