Search

Yuan pulls back vs dollar under c.bank guidance

Reuters - Saturday, July 5

By Lu Jianxin

SHANGHAI, July 4 - The yuan pulled back against the dollar on Friday after the Chinese central bank set a much lower reference rate, suggesting it was willing to see the yuan's appreciation pause when the dollar strengthened globally.

"The yuan appreciated at a relatively faster pace against the dollar in the month through Thursday. But the dollar's recovery on global markets overnight gave the central bank an easy excuse to pull it back," said a dealer at a European bank in Shanghai.

"That again shows the government is careful not to create too high expectations for yuan/dollar appreciation, because that could invite inflows of speculative funds."

The yuan <CNY=CFXS> traded in a range of 6.8572 to 6.8650 against the dollar on Friday, compared with Thursday's close of 6.8510 -- which was also its highest traded level since the Chinese currency was revalued in July 2005.

Before Friday's trade began, the central bank fixed the yuan's daily mid-point <CNY=SAEC> at 6.8639 against the dollar, down sharply from the previous day's 6.8529, which was a post-revaluation high for the reference rate.

China's foreign debt rose to $392.6 billion at the end of March from $373.6 billion at the end of last year, the State Administration of Foreign Exchange said on Friday. (For story, please click [ID:nPEK365239])

Short-term foreign debt, an indicator of inflows of capital speculating on yuan appreciation, rose to $236.7 billion at the end of March from $220.1 billion at the end of last year, the foreign exchange regulator said in a statement on its website .

YUAN UP VS CURRENCY BASKET

Data from the Bank for International Settlements showed the yuan's nominal effective exchange rate -- its value against a basket of currencies weighted by China's foreign trade -- rose 4.09 percent in the first half of this year, compared with a 1.69 percent rise for all 2007.

The yuan's NEER jumped 3.99 percent in the second quarter of this year, accelerating from 0.09 percent in the first quarter.

Its real effective exchange rate , adjusted for nations' estimated inflation, appreciated 3.57 percent in the first half, compared with 4.86 percent for all 2007. It rose 2.93 percent in the second quarter after a 0.63 percent rise in the first.

Traders said the data appeared to show a growing emphasis by China on ensuring continued yuan appreciation against a combination of currencies, in order to fight inflation.

"There are signs that the yuan is increasingly being managed on the basis of a basket of currencies, even though its rise against the dollar will still be most important," said a dealer at a North American bank in Shanghai.

"But yuan/dollar appreciation is now being managed in a much more volatile way, meaning sharply increased risks for speculators," he said, adding that the offshore forwards market was now factoring in such risks.

One-year offshore dollar/yuan non-deliverable forwards <CNY1YNDFOR=> edged higher to 6.5060 in late trade on Friday from Thursday's close of 6.5030.

Their latest level implied yuan appreciation of 5.50 percent against the dollar in the next 12 months from Friday's spot mid-point.

Implied 12-month yuan appreciation this week has fallen below the 6 to 7 percent range that many dealers believed had become the established market consensus in recent weeks.

Recommend this article

Average (0 votes)
0 stars
Sign in to recommend this article »
Most Recommended Stories »

Related Articles: Business