1. China’s yuan slips, interbank borrowing costs edge higher

China’s yuan slips, interbank borrowing costs edge higher

China's yuan on Thursday slipped to its lowest against the US dollar in nearly a week, as the greenback gained overnight thanks to a weaker euro, which sagged as chances the European Central Bank would step away from monetary easing faded.

By: | Hong Kong | Published: March 30, 2017 9:59 AM
The global dollar index rose to 100.07 from the previous close of 99.998. It rose to 100.130 overnight, its highest since March 21. The offshore yuan was trading 0.15 percent stronger than the onshore spot at 6.8828 per dollar. (Reuters)

China’s yuan on Thursday slipped to its lowest against the US dollar in nearly a week, as the greenback gained overnight thanks to a weaker euro, which sagged as chances the European Central Bank would step away from monetary easing faded. The People’s Bank of China set the midpoint rate at 6.8889 per dollar prior to market open, firmer than the previous fix of 6.8915. The spot market opened at 6.8950 per dollar and was changing hands at 6.8932 at midday, 34 pips weaker than the previous late session close and 0.06 percent weaker than the midpoint. The yuan traded within a narrow range between 6.8956 and 6.8930 per dollar in the morning.

“Stabilizing RMB sentiment is likely to hinge on the U.S. dollar performance and Fed’s rate hike pace this year,” Ken Cheung, Asian FX strategist at Mizuho Bank, wrote in a note.

“Policymakers will probably take more account into the USD movement before making FX operation and management in the RMB market.”

The global dollar index rose to 100.07 from the previous close of 99.998. It rose to 100.130 overnight, its highest since March 21. The offshore yuan was trading 0.15 percent stronger than the onshore spot at 6.8828 per dollar.

The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 94.12, weaker than the previous day’s 94.15.

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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 7.0855, 2.77 percent weaker than the midpoint.

One-year NDFs are settled against the midpoint, not the spot rate. In the interbank market, the Shanghai Interbank Offered Rate (SHIBOR) for the seven-day tenor was 2.8210 percent on Thursday, its highest level since mid-2015, due to concerns about tighter liquidity heading into quarter-end.

Traders say that adding to the usual concerns on liquidity as a quarter ends is the belief some lenders are hoarding cash ahead of the central bank’s quarterly assessment of the health of commercial banks.

The macro-prudential assessment, or MPA, will include off-balance sheet wealth management products (WMPs) for the first time, to give authorities a better sense of the risks in the financial system.

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