1. China’s yuan jumps on state bank buying, dollar weakness

China’s yuan jumps on state bank buying, dollar weakness

State-owned Chinese banks sold dollars in the onshore spot market on Monday, in the wake of comments by a central banker that the yuan had the conditions to be stable and strong, two traders said.

By: | Shanghai | Published: November 28, 2016 11:21 AM
Spot yuan opened at 6.9042 per dollar and was changing hands at 6.9018 by 0445 GMT, 152 pips firmer than the previous late session close and on track for its biggest one-day gain since early August, traders said. (Reuters) Spot yuan opened at 6.9042 per dollar and was changing hands at 6.9018 by 0445 GMT, 152 pips firmer than the previous late session close and on track for its biggest one-day gain since early August, traders said. (Reuters)

State-owned Chinese banks sold dollars in the onshore spot market on Monday, in the wake of comments by a central banker that the yuan had the conditions to be stable and strong, two traders said.

The banks’ move amplified the impact of a slightly weaker dollar, helping to boost the yuan by 0.2 percent, though it remained near 8-1/2-year lows.

Spot yuan opened at 6.9042 per dollar and was changing hands at 6.9018 by 0445 GMT, 152 pips firmer than the previous late session close and on track for its biggest one-day gain since early August, traders said.

“Big state banks were offering dollar liquidity,” said a trader at a Chinese bank in Shanghai.

“They started selling dollars when the market opened, at firmer than the 6.91 level, then around 6.9120, then at around 6.9050, and now at around 6.9020,” the trader added.

Traders said dollar sales had been widely expected by the market after Yi Gang, central bank vice governor, said on Sunday that current conditions point to a stabilisation of the yuan after a volatile recent performance against the U.S. dollar, and the currency remains strong.

As of last week, the yuan had lost more than 6 percent of its value against the dollar so far in 2016. Selling of emerging market currencies in general has accelerated in recent weeks as the dollar climbed on expectations that U.S. President-elect Donald Trump will ramp up fiscal spending.

Ken Cheung, Asian FX strategist at Hong Kong treasury department of Mizuho Bank, wrote in a note on Monday the “verbal support for the RMB (could) curb bearish RMB sentiment”.

The dollar sales by major state banks happened as the greenback took a breather in global markets from a strong run-up since the Nov. 8 presidential election.

A gauge of dollar strength, which tracks the U.S. currency against its six major rivals, dipped to 100.91 on Monday, after hitting a low of 100.64, as overseas investors consolidated gains on a holiday-shortened week last week.

The People’s Bank of China set the midpoint rate at 6.9042 per dollar prior to the market open, firmer than the previous fix of 6.9168.

Some traders predicted that the midpoint might be set as strong as around 6.88 if the dollar index continued to hover at the current levels.

The offshore yuan was trading 0.33 percent weaker than the onshore spot at 6.9248 per dollar.

While it has depreciated sharply against the dollar, the yuan has seen continued resilience against a basket of currencies of China’s main trading partners.

The latest China Foreign Exchange Trade System (CFETS) data showed that the index for the yuan’s value based on the market’s trade-weighted basket stood at 94.67 on Friday, up 0.14 percent from the previous week.

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