SHANGHAI, Nov 25: China’s yuan was little changed on Monday morning after the central bank strengthened its guidance slightly, stuck in a tight range as traders said big banks are keeping the market on lockdown.
The stronger midpoint setting followed a slide in the dollar index overnight, but the spot market hardly twitched.
The yuan has nearly flatlined in minimal volatility in recent weeks as traders say major state-owned banks continue to buy up dollars, capping upward pressure on the traded exchange rate.
The central bank set the midpoint at 6.1342 per dollar in the morning, up 0.06 percent from Friday’s close. The spot yuan opened at 6.0924 per dollar, marginally firmer than Friday’s 6.0936 close, and stayed within a close range of less than 10 points in the morning session.
The yuan remains within sight of the record high of 6.0802 set in late October, but traders believe the People’s Bank of China is acting through the large banks to hold the rate back in the face of an onslaught of hot money inflows looking to cash in on expectations of further appreciation.
The offshore market in Hong Kong is pricing in more appreciation to come, with the offshore yuan (CNH) trading at 6.0777 per dollar, 24 basis points stronger than the onshore version.
The PBOC strategy has maintained market liquidity while holding back the yuan, but it is also pouring extra yuan into the interbank market as a side effect, affecting the PBOC’s money management strategy.
In response the bank has signalled it will aggressively sop up extra cash through open market operations, and short-term money rates have risen as a result.
The onshore spot yuan market at a glance:
Item Current Previous Change
PBOC midpoint 6.1342 6.138 0.06%
Spot yuan 6.0924 6.0936 0.02%
Divergence from midpoint* -0.68%
Spot change ytd 2.26%
Spot change since 2005 revaluation 35.85%
*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 6.0777 0.24%*
Offshore non-deliverable 6.1505 -0.27%**
Forwards *Premium for offshore spot over onshore **Figure reflects difference from PBOC’s official midpoint, since non-deliverable forwards are settled against the midpoint.
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