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China's yuan shackled by uncertainty over growth, Fed impact


Reuters

SHANGHAI, Dec 7 (Reuters) - China's yuan was flat against the dollar on Thursday, as the local currency was hobbled by uncertainty over its outlook for next year and how Chinese growth and U.S. rate increases will play out in the markets.

The dollar was steady on Thursday, after rising to a two-week high against a basket of six other major currencies overnight on optimism towards U.S. lawmakers' making progress on the tax legislation and upbeat U.S. private-sector employment data.

The global dollar index was off a touch at 93.533 as of midday from the previous close of 93.61.

Thursday's official fixing was also the weakest since Nov.22.

In the spot market, the onshore yuan opened at 6.6180 per dollar and was changing hands at 6.6140 at midday, just 5 pips firmer than the previous late session close and 0.08 percent stronger than the midpoint.

A trader at a foreign bank in Shanghai said the yuan was very steady in morning trade, with some uncertainty about the outlook next year keeping traders on the sidelines.

Some of the traders have also squared-off their books for the year, he said.

Attention is now focused on how a slowdown in China's economy and higher rates in the United States will impact the yuan in 2018.

Volatility in the Chinese currency has been falling following the launch of a new trading system on Monday that matches orders for USD/CNY trades among market-makers, according to traders.

The yuan has gained more than 5 percent versus the dollar so far this year as authorities, fearing another slide to extend a 6.5 percent drop in 2016, propped it up with a series of capital control measures.

ING analysts said in a note that they expect the yuan to remain strong next year.

"Our forecast is for USD/CNY to reach 6.50 by end of 2017 and 6.30 by end of 2018, i.e. a 3% appreciation in 2018," they said in a note to clients.

Some market participants said trading volume climbed on Thursday morning, suggesting that some institutions were taking advantage of tiny price swings to make multiple intraday trades for quick profit.

The daily trading volume stood at $15.144 billion, compared with the full day volume of $20.511 billion a day earlier.

Separately, China is due to release its November foreign exchange reserves data later in the day. A Reuters poll suggested that the reserves were expected to be up for a 10th month to $3.12 trillion, as capital controls and a weakening dollar continue to staunch outflows.

The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 95.31, firmer than the previous day's 95.17.

The offshore yuan was trading 0.08 percent weaker than the onshore spot at 6.619 per dollar.

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 6.7775, off 2.33 percent from the midpoint.

One-year NDFs are settled against the midpoint, not the spot rate.

The yuan market at 0409 GMT:

ONSHORE SPOT:

Item

Current

Previous

Change

PBOC midpoint

6.6195

6.6163

-0.05%

Spot yuan

6.614

6.6145

0.01%

Divergence from midpoint*

-0.08%

Spot change YTD

5.03%

Spot change since 2005 revaluation

25.14%

Key indexes:

Item

Current

Previous

Change

Thomson Reuters/HKEX CNH index

95.31

95.17

0.1

Dollar index

93.533

93.61

-0.1

*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 *

6.619

-0.08%

Offshore non-deliverable forwards **

6.7775

-2.33%

*Premium for offshore spot over onshore

**Figure reflects difference from PBOC's official midpoint, since non-deliverable forwards are settled against the midpoint..




This article appears in: Politics , Stocks , World Markets


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