SHANGHAI, Dec 5: China’s central bank slightly weakened the yuan’s official guidance rate on Thursday morning, but the spot market remained flat with trades confined within a tight range.
The People’s Bank of China (PBOC) set the official midpoint at 6.1310, backing off from a record high struck on Wednesday, but the spot market remained flat, opening at the exact same rate of 6.0917 as on Wednesday.
Trading was range bound, with realised market volatility at its lowest point since early 2010 – the period during which the PBOC froze yuan appreciation in response to the global financial crisis – and traders said stalled spot trade had led some to migrate to the long-term forwards market.
‘There’s no change, there’s no trade either. Fundamentally speaking this is turning into a fixed exchange rate,’ said a trader at a Shanghai bank.
‘We’re still looking at the forwards market.’
Analysts are uncertain how long the stand-off between the central bank, which traders say is holding back appreciation using intermediaries, and those who expect more appreciation, will last.
Many traders believe the stasis will endure through the end of the year, and offshore investors are pricing the yuan traded in Hong Kong (CNH) at a premium to the onshore version, indicating expectations for further appreciation going forward.
Money rates remain high due to liquidity drains by the central bank in the interbank market, which some analysts believe will eventually affect the foreign exchange market.
‘As the RMB liquidity tightness will likely remain, we do see upside risks to the USD/CNY swap points,’ wrote Hao Zhou, economist for ANZ in Shanghai, in a note to clients distributed on Thursday morning.
The onshore spot yuan market at a glance:
Item Current Previous Change
PBOC midpoint 6.131 6.13 -0.02%
Spot yuan 6.0912 6.0916 0.01%
Divergence from midpoint* -0.65%
Spot change ytd 2.28%
Spot change since 2005 revaluation 35.88%
*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
The offshore yuan market at a glance:
Instrument Current Difference from
Onshore
Offshore spot yuan * 6.0827 0.14%
Offshore non-deliverable 6.149 -0.29%
Forwards **
*Premium for offshore spot over onshore **Figure reflects difference from PBOC’s official midpoint, since non-deliverable forwards are settled against the midpoint. .
(AGENCIES)
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