China's yuan touches 18-month low, falls for a 4th straight month

Wed Apr 30, 2014 5:53am EDT

Related Topics

* Yuan has shed 3.3 pct against the dollar in 2014
    * Currency hit by corporate dollar demand, weak sentiment
    * PBOC signals passivity, sets slightly lower midpoint
    * Yuan seen remaining weak at least until mid-May

    By Lu Jianxin and Pete Sweeney
    SHANGHAI, April 30 (Reuters) - China's yuan fell again on
Wednesday, at one point touching an 18-month low, posting its
fourth straight month of losses, which have erased of all of
last year's gain.
    Dealers said corporate demand for dollars remained high,
partly because Wednesday was the last day of the month, and also
in line with the sour sentiment toward the yuan, which has
changed course in 2014 after years of strengthening.   
    Spot yuan trimmed some earlier losses to finish
at 6.2593 per dollar, down 0.02 percent from Tuesday's close.
The currency lost 0.7 percent in April, and has depreciated 3.3
percent against the dollar so far this year. In 2013, the yuan
strengthened 2.9 percent.
    In Wednesday afternoon trading, the currency hit a trough of
6.2676 versus the dollar, weakest since 6.2756 touched on Oct.
16, 2012.
    In past years, when the yuan was rising, dollar supply was
sufficient to meet demand, but the yuan's lingering weakness
this year had pushed firms to retain more dollars, so demand for
them exceeds supply from time to time, traders said.
    "Weak sentiment toward the yuan prevails, with companies
continuously buying dollars, partly for seasonal demand, partly
due to worries over the possibility of further yuan weakness,"
said a trader at a European bank in Shanghai.
    "In late trade today, dollar purchases eased. Dollar demand
may ease to some extent after the start of May," he said.
    The People's Bank of China (PBOC) signalled that it would
not come to the yuan's rescue for now as it fixed Wednesday's
official midpoint 0.04 percent weaker at 6.1580.
    There have been no signs lately that the PBOC is intervening
to depress the yuan, with traders interpreting its moves as
signals that monetary authorities do not want to add to the
yuan's depreciation pressure.
    In fact, for the five trading sessions prior to Wednesday,
the central bank set the midpoint slightly stronger.
    The PBOC guided the currency weaker starting in mid-January,
which traders and economists said was done to deter speculators
from betting on one-way appreciation.
    The central bank never said it was deliberately pushing the
yuan down, but currency dealers told Reuters they suspected the
drop was driven primarily by China's "Big Four" state-owned
banks, who conducted dollar purchases earlier this year in the
domestic foreign exchange market at the PBOC's behest.
    More recently, Chinese industrial companies have started 
covering their dollar short positions and tabling stop-loss
orders as the yuan's weakness has lingered much longer than they
expected, traders said.
    That, plus the fact that Chinese exporters are more willing
to keep dollars they have earned on hand, has made the market
increasingly difficult to handle seasonal dollar demand.
    
    LIKELY TO STAY WEAK
    The yuan is likely to remain weak at least until mid-May
when China will report its foreign trade data for April, but
traders said the room for further falls will be limited given
that the PBOC is largely staying on the sidelines for now.
    Recent dollar demand has mainly come from China's oil firms,
particularly PetroChina  and Sinopec Corp
 , who are primary dollar buyers on the
domestic market as the oil trade is still done mostly in
dollars.
    The demand from oil giants typically rises in the second
quarter from the first as China's oil purchases, which account
for more than half of its crude consumption, pick up in line
with more economic activity, traders said.
    The currency's sudden slide has also impacted offshore
markets where the yuan is traded and linked to various
investment products. 
    Taiwan's financial regulator said on Wednesday it will
penalise three more banks due to improper foreign currency
derivative sales, after already punishing one bank for failing
to disclose risks associated with such products. The move comes
as client complaints about losses mounted amid the recent sharp
fall in the Chinese yuan.  
    China's financial markets will be closed on Thursday and
Friday for a holiday. Trading will resume on Monday.
        
 The onshore spot yuan market at a glance: 
 Item                       Current    Previous  Change (pct)
 PBOC midpoint              6.1580     6.1556      -0.04
 Spot yuan                  6.2493     6.2580      -0.02
 Divergence from midpoint*  1.65                 
 (pct)                                           
 Spot change ytd                                 -3.28
 Spot change since 2005                          32.23
 revaluation                                     
 
*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.
    
The offshore yuan market at a glance:
 Instrument                     Current  Difference
                                         from onshore
                                         (pct)
 Offshore spot yuan             6.2635   -0.07
 Offshore non-deliverable       6.2590   -1.61
 forwards                                
 *Premium for offshore spot over onshore 
**Figure reflects difference from PBOC's official midpoint,
since non-deliverable forwards are settled against the midpoint.
. 
    
    >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
    RECENT DEVELOPMENTS
    - US warns China over currency depreciation 
    - Capital flows, improving trade to prop up yuan in
H2   
    - Dim sum bonds mark record quarter in Hong Kong
 
    - New quotas rekindle debate over dim sum market's future
 
    - Flood of offshore yuan bonds may spark higher yields
 
        
    KEY DATA POINTS
    - Yuan spot performance versus midpoint after trading band
widened link.reuters.com/jyz38v
    - China's yuan, other emerging mkt currencies vs dollar link.reuters.com/xyd46v
    - Global currency performance INTERACTIVE GRAPHIC: link.reuters.com/cyx46v
    - China's trade surpluses mainly driven by weak imports
rather than strong exports. GRAPHIC: link.reuters.com/qav68s
    - Despite relatively stable dollar/yuan exchange rate, the
yuan is appreciating on a trade-weighted basis. GRAPHIC: link.reuters.com/sed74t
 
   >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>   

 (Editing by Richard Borsuk)
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