Yuan firms amid curbs on money flows, higher volatility seen ahead – Nasdaq


SHANGHAI, June 19 (Reuters) - China's yuan firmed against
the dollar on Monday, supported by a stronger midpoint fix and
as data pointed to more balanced supply and demand in the forex
market amid Beijing's tougher crackdown on illegal capital
    Traders expect more volatility for the yuan in coming
months, however, amid mounting expectations that the greenback
could strengthen again as the United States tightens monetary
policy while China's economic growth slows.
    "The yuan is firm today, but going forward, much depends on
the performance of the U.S. dollar," said a trader at a Chinese
bank in Shanghai, who declined to be identified.
    "After over five months of weakness, I expect the dollar
index to strengthen again, which means there will be volatility
in the yuan."
    The People's Bank of China (PBOC) set the midpoint rate
 at 6.7972 per dollar prior to market open, firmer
than the previous fix 6.7995. The spot market  opened
at 6.8092 per dollar and was changing hands at 6.8113 at midday.
    Data released by the central bank on Friday showed its net
foreign exchange sales fell to the lowest in nearly two years in
May as the yuan stabilised, while regulators said China's
foreign exchange supply and demand was basically balanced during
the month. [nL3N1JD2Q9]
    ING said in a note that the pressure on the PBOC to support
the yuan had diminished. "With the tweak of the PBOC's USDCNY
fixing formula and in a weak-USD environment we expect exchange
market intervention will swing from this month at the latest
from supporting the CNY to supporting the USD. Our year-end
USDCNY forecast is 6.72."
    Also on Friday, China's insurance regulator said it would
continue its months-long crackdown on illegal sales of Hong Kong
insurance products by mainland agencies which it said had led to
asset outflows and even money laundering. [nB9N1J5019]
    Meanwhile, the global dollar index <.DXY> rose to 97.171
from the previous close of 97.164.
    Traders said that MSCI's decision this week on whether to
include China stocks into its emerging market index would have
limited short-term impact on the currency market, with more
attention being paid to China's economic outlook and monetary
    Larry Hu, analyst at Macquarie Capital Ltd, expects China's
economy to slow in the second half, while the PBOC would likely
keep the benchmark rate on hold for the whole year of 2017.
    Hu expects "higher volatility" for the yuan in the second
half. "The USD/CNY might break 7.0 if the US$ strengthens, but
end the year at around 6.9," he wrote.
    On Monday, the Thomson Reuters/HKEX Global CNH index
<.RXYH>, which tracks the offshore yuan against a basket of
currencies on a daily basis, stood at 94.16, weaker than the
previous day's 94.19.

        The yuan market at 4:42AM GMT:

 Item               Current  Previous  Change
 PBOC midpoint      6.7972   6.7995    0.03%
 Spot yuan          6.8122   6.8135    0.02%
 Divergence from    0.22%
 Spot change YTD                       1.97%
 Spot change since 2005                21.50%

    Key indexes:

 Item            Current     Previous  Change

 Thomson         94.16       94.19     0.0
 CNH index
 Dollar index    97.164      97.164    0.0

*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


 Instrument            Current   Difference
                                 from onshore
 Offshore spot yuan    6.811     0.02%
 Offshore              6.987     -2.72%

*Premium for offshore spot over onshore 
**Figure reflects difference from PBOC's official midpoint,
since non-deliverable forwards are settled against the midpoint.

 (Reporting by Samuel Shen and John Ruwitch; Editing by
Jacqueline Wong)
 ((samuel.shen@thomsonreuters.com;  +86 21 6104 1789; Reuters
Messaging: samuel.shen.thomsonreuters.com@reuters.net))


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