China’s yuan bounces as dollar momentum wanes on Federal doubts

By: | Published: August 30, 2016 11:12 AM

China's yuan rebounded from the prior session's six-week low on Tuesday as a dollar rally lost momentum on renewed doubts of a near term rate rise by the U.S. Federal Reserve.

"Investors here had expected the dollar to stage a solid uptrend after Yellen's speech," said a trader at a Chinese commercial bank in Shanghai. (Source: Reuters)“Investors here had expected the dollar to stage a solid uptrend after Yellen’s speech,” said a trader at a Chinese commercial bank in Shanghai. (Source: Reuters)

China’s yuan rebounded from the prior session’s six-week low on Tuesday as a dollar rally lost momentum on renewed doubts of a near term rate rise by the U.S. Federal Reserve.

While Fed Chair Janet Yellen said on Friday the case for a rate increase was strengthening, she provided little detail on when it would next move.

“Investors here had expected the dollar to stage a solid uptrend after Yellen’s speech,” said a trader at a Chinese commercial bank in Shanghai.

“Instead, the dollar appears to have lost steam so quickly, and that has weakened their impulse to immediately build more positions to hedge exchange rate risk.”

The dollar took a breather on Tuesday, as investors waited to see if U.S. employment data later this week would reinforce Yellen’s upbeat speech on Friday.

In Shanghai, the People’s Bank of China set the midpoint rate at 6.6812 per dollar prior to market open, firmer than the previous fix at 6.6856. Spot yuan opened at 6.6811 per dollar and was changing hands at 6.6777 at midday, 61 pips stronger than the previous close.

On Monday, it hit its weakest level since July 20. Traders said the PBOC largely stayed on the sidelines on Tuesday, refraining from intervening to support the yuan as sentiment towards the Chinese currency remained stable.

The central bank intervened to prevent the yuan from weakening beyond the psychologically important 6.7 per dollar for about two weeks after the currency briefly fell below that level in mid-July.

The yuan has generally softened this year partly because of the dollar’s strengthening in global markets, and the market expects the PBOC will likely continue backstopping the currency from any sharp moves lower.

“As China’s central bank defended USD-CNY intensively at 6.70 level in July, a natural question is whether the PBOC will safeguard this level again? Our answer is yes,” wrote Zhou Hao, Senior Emerging Market Economist at Commerzbank in Singapore, in a note.

“China’s central bank is likely to safeguard its currency at the key levels. We also expect that China’s central bank will allow the local banks to trade CNH in September, in order to narrow the CNY-CNH spread.”

The offshore yuan was trading 0.19 percent weaker than the onshore spot at 6.6901 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 94.9, weaker than the previous day’s 94.97.

The yuan market at {TIME:h12:mm gmt} GMT: ONSHORE SPOT: Item Current Previous Change PBOC midpoint {S^F1} {S^F2} {;S^F2%S^F 1:2}% Spot yuan {D^F1} {D^F2} {;D^F2%D^F 1:2}% Divergence from {;D^F1% midpoint* S^F1:2} % Spot change YTD {;6.4936%D ^F1:2}% Spot change since 2005 {;8.2765%D revaluation ^F1:2}%

Key indexes: Item Current Previous Change Thomson {X^F1} {X^F2} {X^F3} Reuters/HKEX CNH index Dollar index {Y^F1} {Y^F2} {Y^F3} *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 {I^F1} {;D^F1%I^F1:2} * % Offshore {J^F1} {;S^F1%J^F1:2} 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. . {D:CNY=CFXS;TRDPRC_1,HST_CLOSE,OPEN_PRC,NETCHNG_1;} {S:CNY=PBOC;PRIMACT_1,PRIMACT_2;} {I:CNH=D3;PRIMACT_1,PCTCHNG:1,TRDPRC_1;} {J:CNY1YNDFOR=;PRIMACT_1,PCTCHNG:1;} {X:.RXYH;TRDPRC_1,HST_CLOSE,PCTCHNG:1;} {Y:.DXY;TRDPRC_1,HST_CLOSE,PCTCHNG:1;} {Z:.CFSCNYI;PRIMACT_1,PRIMACT_2;}

Get live Stock Prices from BSE and NSE and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Switch to Hindi Edition