HONG KONG, Aug 12: The Chinese yuan moved higher to within sight of a recent record high on Monday as recent data suggesting the economy may have turned a corner put the dollar on the defensive, and pointed to further gains for the yuan over the year.
As the People’s Bank of China fixed the yuan’s trading midpoint lower for a sixth consecutive day, traders reported a pickup in selling in short-dated offshore non-deliverable and deliverable dollar/yuan forwards, indicating that markets are slowly swinging around to the view that the yuan may be in for a period of gains.
Around midday, the yuan was trading at 6.1198 per dollar, not far away from a record intraday high of 6.1143 hit last Thursday. If this pace continues, it is poised to gain for a fourth consecutive week.
‘Over the past two months or so, the market has been broadly positioned for a China slowdown story but the recent data has forced a rethink and the brunt of the position changes may be borne by the offshore derivatives market,’ said a currency trader at a U.S. Bank in Hong Kong.
July’s economic data indicates the economy may have found renewed momentum in the third quarter following a sluggish first half of 2013, led by industrial production and retail sales prompting a pickup in growth for the rest of the year.
JP Morgan, for one, expects the Chinese economy to expand at a faster clip than the previous two quarters. It expects the economy to grow at 7.4 percent in 2013, much above a publicly proclaimed floor of 7 percent by the Chinese authorities.
Indeed, spot dollar/yuan has started to trade towards the lower end of the trading band after spiking in July suggesting a rebound in corporate and investment flows.
That is also fostering increased confidence in the yuan’s outlook. One year dollar/yuan non-deliverable forward points posted their third biggest weekly drop last week, according to Thomson Reuters data and have so far fallen 0.8 percent this month alone.
Despite that sharp drop, one year NDFs is still pricing in a 2.25 percent fall in the Chinese currency suggesting these positions may be the most at risk if flows pick up.
‘While volumes are low due to the summer lull, we are starting to see more selling flows in the offshore dollar/yuan space indicating that the yuan may be in for a period of strength,’ said a trader at a Chinese bank in Hong Kong.
The Australian dollar, another proxy for the Chinese economy, has appreciated nearly a percent against the U.S. dollar in the past week despite a quarter point cut by the central bank last week. China is Australia’s biggest export market.
A Reuters poll last week showed that the Chinese yuan is likely to rise to new record highs of 6.07 over the next 12 months.
(AGENCIES)
Trending Now
E-Paper
Follow our WhatsApp channel