Blog yOur Mind

Yuan end flat vs dollar, market eyes loan, econ data

Posted on: May 7, 2009

Reuters – Friday, May 8

* seen keeping yuan stable for now after recent rise

* worries about dollar depreciation

* China to keep ample liquidity in market in medium term

* China’s April economic data seen mixed – Reuters poll

By Lu Jianxin and Jacqueline Wong

SHANGHAI, May 7 – The yuan was steady against the dollar on Thursday after the People’s Bank of China kept its reference rate for the yuan nearly unchanged, while the central bank sent mixed signals on currency and monetary policies.

Spot yuan <CNY=CFXS> closed at 6.8218 versus the dollar on Thursday, compared with Wednesday’s close of 6.8216 after the central bank set the yuan’s daily mid-point <CNY=SAEC>, the reference rate, at 6.8230 from Wednesday’s 6.8232.

Since late April, the central bank had allowed the yuan to appreciate slightly up to early this week amid signs that China’s economy may recover sooner than expected, propelled by strong lending and a jump in investment, among other indicators.

But after spot yuan touched a seven-month high on Tuesday, the central bank used its mid-point to guide the yuan slightly lower on Wednesday, tracking a rise in the U.S. Dollar Index on Tuesday. The index was stable overnight.

Also, in a quarterly report on economic policies published late on Wednesday, the central bank reaffirmed its long-standing commitment to keep the yuan basically stable.

But the PBOC also said quantitative easing policies being pursued by the United States, Japan, Britain and Switzerland had increased the uncertainty surrounding key currency exchange rates. [ID:nPEK265651]

“Worries behind a possibility of depreciation of the dollar and other major world currencies may be behind the central bank’s recent relaxation to allow the yuan to appreciate slightly,” said a dealer at U.S. bank in Shanghai.

But after its recent gain, the central bank may want to keep the yuan stable for a while, said a dealer at a European bank.

The yuan is likely to move between 6.8100 and 6.8400 in coming weeks as the market monitors moves from the central bank and the dollar’s performance on global markets, dealers said.

In Wednesday’s policy report, the central bank also pledged an ample supply of credit to support the economy, which it said would enjoy “stable and quite fast” growth despite the current contraction in external demand.

Dealers said the pledge indicated authorities were still not certain whether a full economic recovery was already in sight.

Banking sources told Reuters on Thursday that Chinese banks extended a total of 632 billion yuan in new local-currency loans in April.

The total, if confirmed, would be well down from March’s record high of 1.89 trillion yuan but would still be strong by historical standards. [ID:nPEK294226] Chinese state media earlier this week put the figure at around 600 billion yuan.

A Reuters poll said China’s coming monthly data deluge was likely to show an economy getting back on its feet thanks to government-inspired investment and credit growth, even though falling exports were holding back the vast industrial sector. [ID:nPEK362735]

On Thursday, offshore one-year dollar/yuan non-deliverable forwards <CNY1YNDFOR=> rose to be bid at 6.7301 in late trade from Wednesday’s close of 6.7200.

Their latest level implied yuan appreciation of 1.38 percent over the next 12 months from the day’s spot mid-point, compared with 1.54 percent implied at Wednesday’s close.


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