China's yuan weakens slightly as jitters ease after short-term rate hike


Reuters

HONG KONG, March 20 (Reuters) - China's yuan fell slightly
against the U.S. dollar on Monday after a weaker official
midpoint fixing, and on views that the central bank will stick
to a very modest and gradual pace of monetary tightening to
avoid hurting economic growth.
    China's central bank surprised markets by raising short-term
interest rates for the third time in as many months last week,
in what economists said was a bid to stave off capital outflows
and keep the yuan stable after the Federal Reserve raised U.S.
rates hours earlier.
    Still, while China's leaders have made tackling debt risks a
major priority this year, most traders expect only small
tightening steps this year. Heavy stimulus was required last
year to get the economy back on better footing.
    The People's Bank of China set the midpoint rate <CNY=PBOC>
at 6.8998 per dollar prior to market open, weaker than the
previous fix of 6.8873.
    The spot market <CNY=CFXS> opened at 6.9060 per dollar and
was changing hands at 6.9036 at midday, 6 pips weaker than the
previous late session close and 0.06 percent weaker than the
midpoint.
    The yuan traded within a very tight range between 6.9075 and
6.9035 per dollar in the morning.
    "The increase in short-term interest rates by the central
bank last week was just a one-off knee-jerk reaction to the
Fed's rate decision, and the impact has quieted down now," said
a trader at a Chinese bank in Beijing.
    The Fed is not expected to raise rates again for at least
another three months.
    "China will not in rush to hike benchmark lending and
deposit rates any time soon given muted inflationary pressure as
well as demand for economic stability prior to 19th Party
Congress," OCBC analysts said in a note on Monday.
    A major leadership reshuffle at congress later this year
could bring more of President Xi Jinping's allies into the
country's top leadership team. [nL3N1GR1BX]
    But analysts are not sure if future policy moves will be
synched with the Fed's, and domestic risks will keep
policymakers on guard.
    Data on the weekend showed China's red-hot property market
picked up pace in February after price gains had slowed in the
previous four months, in spite of a raft of new government curbs
aimed at tempering speculative demand.[nL3N1GV01Y]
    "Bottom line: The January-February housing data indicate
that macroprudential measures need to be tightened for our
baseline scenario of a housing-driven slowdown in real estate
investment to materialize," ING said in a note.
    The Thomson Reuters/HKEX Global CNH index <.RXYH>, which
tracks the offshore yuan against a basket of currencies on a
daily basis, stood at 94.2, weaker than the previous day's
94.46.
    The global dollar index <.DXY> fell to 100.16 from the
previous close of 100.3.
    The offshore yuan was trading 0.23 percent stronger than the
onshore spot at 6.8877 per dollar.
    Offshore one-year non-deliverable forwards contracts
(NDFs)<CNY1YNDFOR=>, considered the best available proxy for
forward-looking market expectations of the yuan's value, traded
at 7.1098, -2.95 percent weaker than the midpoint.
    One-year NDFs are settled against the midpoint, not the spot
rate.

    The yuan market at 3:32AM GMT:

    ONSHORE SPOT:
 Item               Current  Previous  Change
 PBOC midpoint      6.8998   6.8873    -0.18%
 <CNY=SAEC>
 Spot yuan          6.9036   6.903     -0.01%
 <CNY=CFXS>
 Divergence from    0.06%
 midpoint*
 Spot change YTD                       0.62%
 Spot change since 2005                19.89%
 revaluation
    Key indexes:

 Item            Current     Previous  Change

 Thomson         94.2        94.46     -0.3
 Reuters/HKEX
 CNH index
 Dollar index    100.16      100.3     -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    6.8877    0.23%
 <CNH=> *
 Offshore              7.1098    -2.95%
 non-deliverable
 forwards
 <CNY1YNDFOR=> **

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












 (Reporting by Michelle Chen; Editing by Kim Coghill)
 ((michelle.chen@thomsonreuters.com; +852 2843 6587; Reuters
Messaging: min.chen.thomsonreuters.com@reuters.net))

Keywords: CHINA YUAN/MIDDAY



This article appears in: World Markets , Economy , Stocks , World Markets


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