SHANGHAI, May 28: The yuan edged higher against the dollar on Monday, bouncing off a year-to-date low hit on Friday, buoyed by a correction of the dollar index in global markets.
But sentiment towards the yuan remained bearish as China’s economic growth has slowed more sharply than expected since April. The currency is likely to continue to depreciate slightly in the near-term, traders said.
Spot yuan was trading at 6.3419 per dollar at midday, up slightly from 6.3439 at the close on Friday when it hit 6.3525 in intraday trading, its lowest level this year.
‘Dollar purchases have become quite subdued today,’ said a dealer at a European bank in Guangzhou.
‘But people are not willing to build heavy positions in yuan, indicating a lack of confidence in whether the currency
could really strengthen in the near term.’
The dollar index fell 0.5 percent in Asian trade on Monday, staging a correction after it hit its highest level since September 2010, at 82.461, last Friday. The index has still jumped 4 percent so far this month.
The yuan has shed 0.5 percent this month and 0.8 percent this year under pressure from a generally strengthening dollar in global markets, on edge over Greek’s future in the euro zone, as well as China’s slowing economy.
Growth in China’s gross domestic product slowed to a near
three-year low of 8.1 percent in the first quarter. Many economists now expect GDP growth could fall below 8 percent in the second quarter.
In the latest sign of the slowdown, the combined profits of industrial companies across China fell 1.6 percent in the first four months of 2012 from a year earlier, the National Bureau of Statistics said on Sunday. The decline worsened from a 1.3 percent drop in the first three months.
The government has been taking a range of steps to boost growth, announcing over the weekend it will give private capital the same entry standards to the banking industry as other capital.
Before trading began on Monday, the People’s Bank of China (PBOC) set the yuan midpoint at 6.3236, marginally stronger than Friday’s midpoint of 6.3260 but much stronger than Friday’s yuan trading close.
The PBOC has recently set a series of midpoints stronger than the yuan’s trading level, as it seeks to keep the exchange rate relatively stable, although it has also signalled that it would tolerate a measured depreciation.
The midpoint is the central bank’s base rate from which the yuan can rise or fall by 1 percent on a given trading day.
‘Similarly to the way it was recently letting the yuan appreciate, the PBOC is now permitting moderate yuan depreciation, while controlling the pace,’ said a dealer at Chinese commercial bank in Shanghai.
Offshore one-year non-deliverable yuan forward contracts
Continued to trade at a premium to the spot price, changing hands at 6.4020 in the afternoon session for a discount of 1.22 percent to Monday’s midpoint.
Offshore spot yuan was trading around 6.3420 in morning trade, largely in line with the onshore spot yuan trend.
(agencies)
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