January 29, 2016 / 5:02 AM / 3 years ago

China's yuan firms on midpoint, Beijing vows to keep yuan stable

SHANGHAI (Reuters) - China’s yuan edged up against the dollar on Friday and is set for a mild weekly gain after the central bank fixed its daily midpoints stronger over the past week.

A clerk counts Chinese 100 yuan banknotes at a branch of a foreign bank in Beijing January 4, 2016. REUTERS/Kim Kyung-Hoon

Beijing has also taken further steps to control the country’s capital outflows to support the Chinese currency.

“The market remained flattish, with all eyes on the central bank’s guidance of late,” said a dealer at a Chinese commercial bank in Shanghai.

“Even if there will likely be more forex demand next week, the yuan might not swing wildly,” said the same trader in Shanghai.

Traders expected increased foreign currency purchases by corporates and individuals next week to meet requirements ahead of the Lunar New Year, which falls on Feb. 8 this year.

The People’s Bank of China (PBOC) set the midpoint rate at 6.5516 per dollar prior to market open, 0.02 percent firmer than the previous fix 6.5528. The midpoint has been fixed firmer every day over the past week.

In line with the midpoint, the spot market opened at 6.5757 per dollar and was changing hands at 6.5740 at midday, 0.02 percent firmer than the previous close.

It is set to firm slightly by 0.1 percent for the week if it closes at the midday level.

Chinese regulators have asked several domestic funds to postpone issuing new outbound investment products, sources said, the latest attempt by authorities to stem capital flight which is undermining the value of the yuan and worrying global investors.

The PBOC has increased the frequency of open market operations between Jan. 29 and Feb. 19 to maintain liquidity during the Lunar New Year.

Repeated injections by the central bank might delay expected cuts in banks’ reserve requirement ratios (RRR), which would increase long-term base money in the system and so add pressure on the yuan to depreciate further.

Premier Li Keqiang also phoned International Monetary Fund (IMF) chief Christine Lagarde on Thursday to pledge Beijing would keep the yuan “basically stable” and improve communication with financial markets on the currency.

On Friday, the dollar index stood at 98.628, after it fell broadly on Thursday after a plunge in U.S. durable goods orders that pointed to weakening U.S. growth.

Offshore yuan was trading 0.65 percent softer than the onshore spot at 6.6173 per dollar.

The onshore yuan weakened 0.3 percent against the euro to 7.1984.

It firmed 1.0 percent against the Japanese yen, hovering at 5.4842 to 100 yen after the Bank of Japan stunned markets by adopting negative interest rates in its boldest step yet to reinflate the long-languishing economy.

The yuan market at a glance:

ONSHORE:

Item Current Previous Change

PBOC midpoint 6.5516 6.5528 0.02%

Spot yuan 6.5740 6.5754 0.02%

Divergence from 0.34%

midpoint*

Spot change ytd -5.63%

Spot change since 2005 25.90%

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 2 percent from official midpoint rate it sets each morning.

OFFSHORE CNH MARKET

Instrument Current Difference

from onshore

Offshore spot yuan * 6.6173 -0.65%

Offshore 6.8684 -4.61%

non-deliverable

forwards **

*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 the Shanghai Newsroom; Editing by Jacqueline Wong

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