September 7, 2017 / 4:54 AM / 10 months ago

China's yuan rises as raises official fix for 9th straight day

    SHANGHAI, Sept 7 (Reuters) - China's yuan extended its
blistering rally against the faltering U.S. dollar on Thursday
after the central bank raised its official guidance rate for the
ninth straight session.
    The Chinese currency has strengthened more than 2,000 pips
since the beginning of the August, taking its gain to 6.5
percent so far this year, but its upward momentum has appeared
to slow slightly this week, traders said.
    That has fueled market speculation over how much more
authorities will allow the yuan to appreciate, even if the
dollar remains weak.    
    While policymakers are keen to bolster market and public
confidence heading into a key Communist Party Congress next
month, some Chinese exporters have begun to complain of losses
caused by the currency's sudden turnaround.
    Prior to the market opening on Thursday, the People's Bank
of China lifted its official yuan midpoint for the
ninth trading day in a row to 6.5269 per dollar, the strongest
since May 18, 2016.
    The midpoint has now seen its longest string of firmer
settings since late December 2010.
    But Thursday's midpoint - 42 pips or 0.06 percent firmer
than the previous fix of 6.5311 per dollar - was slightly weaker
than market expectations, traders said.
    In the spot market, the yuan opened at 6.5271 per
dollar and was changing hands at 6.5226 at midday, 44 pips
firmer than the previous late session close and 0.07 percent
stronger than the midpoint. 
    But spot yuan stuck to a tight range, and trading volume
dropped sharply in the morning, traders said.
    The daily trading volume stood at $6.976
billion as of 0403 GMT, compared with Wednesday's full-day
volume of $26.003 billion.
    "There was both corporate dollar buying and selling in the
market today, unlike the one-way dollar sales earlier," said a
trader at a Chinese bank in Shanghai, adding that companies
which had sold large amounts of long dollar positions were
taking a breather.
    China is due to release its August foreign exchange reserves
data later in the session. Economists polled by Reuters had
expected foreign exchange reserves to rise by $19 billion to
$3.1 trillion, indicating that the weak dollar and tougher
capital controls were continuing to curb capital outflows.
    "We believe that only once inflows are persistently higher
than outflows will the central bank slow down the appreciation
speed," ING economist Iris Pang said in a research note, adding
that she expects to see small net inflows from August.
    "Looking at the longer term, we believe that the PBOC would
like to keep yuan appreciating, albeit at a slower speed, to
keep net inflows positive."        
    Though the Chinese currency has stabilised in recent months
and is close to recouping all of its 2016 losses, economists
believe tight controls on outflows would likely be kept in place
for the foreseeable future.
    "There won't be significant relaxation in at least two
years," Zhao Yang, chief China economist at Nomura
International, said at a forum in Shanghai.
    Zhao said capital controls also supported the goal of
reducing leverage at financial institutions, which is among the
government's top priorities this year.
    The Thomson Reuters/HKEX Global CNH index, which
tracks the offshore yuan against a basket of currencies on a
daily basis, stood at 96.07, weaker than the previous day's
    The global dollar index fell to 92.192 from the
previous close of 92.29. 
    The offshore yuan was trading 0.18 percent weaker than the
onshore spot at 6.5342 per dollar. 
    Offshore one-year non-deliverable forwards contracts
(NDFs), considered the best available proxy for
forward-looking market expectations of the yuan's value, traded
at 6.661, 2.01 percent weaker than the midpoint.
    One-year NDFs are settled against the midpoint, not the spot
    The yuan market at 0403 GMT: 
 Item               Current  Previous  Change
 PBOC midpoint      6.5269   6.5311    0.06%
 Spot yuan          6.5226   6.527     0.07%
 Divergence from    -0.07%             
 Spot change YTD                       6.50%
 Spot change since 2005                26.89%
    Key indexes:
 Item            Current     Previous  Change
 Thomson         96.07       96.15     -0.1
 CNH index                             
 Dollar index    92.192      92.29     -0.1
*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 2 percent from official midpoint rate it sets each

 Instrument            Current   Difference
                                 from onshore
 Offshore spot yuan    6.5342    -0.18%
 Offshore              6.661     -2.01%
*Premium for offshore spot over onshore
**Figure reflects difference from PBOC's official midpoint,
since non-deliverable forwards are settled against the midpoint.

 (Reporting by Winni Zhou and David Stanway; Editing by Kim
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