China FX regulator sees no money risk

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SummaryThe yuan gained almost 2.6 percent against the US dollar from late July.

There is no strong evidence of hot money inflows in China despite a recent rally in the yuan, which has been driven by improved market sentiment, the country's foreign exchange regulator said on Wednesday.

The yuan has gained almost 2.6 percent against the dollar from late July.

Due to the combined effect of both domestic and external factors, the market sentiment has recently turned optimistic from pessimistic, leading to a rally of yuan exchange rate, the State Administration of Foreign Exchange (SAFE) said.

SAFE pointed to signs of a recovery in China's economy and the positive development in Europe's sovereign debt crisis as supportive of the shift in sentiment, but said there was no sign of a substantive rise in cross-border capital flow pressures.

The October data is not yet sufficient to support the judgment that the cross-border capital inflow pressure is increasing remarkably, it said.

Overall, the forex supply and demand is basically balanced in the onshore market and the expectations on yuan exchange rate remain basically stable.

Recent data showed that Chinese banks were net buyers of spot foreign exchange in October, but they remained net sellers of foreign currency in the forward market, SAFE said.

Still, the regulator said that it would step up monitoring of abnormal cross-border capital flows.

The yuan has rallied to record highs on a confluence of powerful, but temporary, factors. Traders expect the surge will run into December at least.

There are differing views over how long the pressure on the yuan to appreciate will then persist, but the consensus view appears to be that market factors and some form of regulatory intervention, will bring the bull run to an end by early 2013

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