Yuan slips on weakest fixing since 2008 as virus rattles markets

Credit: REUTERS/DADO RUVIC

SHANGHAI, April 3 (Reuters) - The yuan slipped on Friday, led by the central bank's weakest guidance since the 2008 global financial crisis as demand for the safe-haven dollar surged amid the deepening economic crisis from the coronavirus pandemic.

Prior to market opening, the People's Bank of China (PBOC) set the midpoint rate CNY=PBOC at 7.1104 per dollar, 109 pips, or 0.15%, softer than the previous fix of 7.0995, and the weakest since March 6, 2008.

The onshore yuan CNY=CFXS opened at 7.0930 per dollar and was changing hands at 7.0885 at midday, 64 pips weaker than the previous late session close.

However, if the yuan finishes the late session at the midday level, it would have firmed a marginal 0.1% to the dollar for the week, marking the first weekly gain in four.

The yuan's losses were also stemmed by investors liquidating dollar positions ahead of key U.S. employment data due later, which is expected to show massive job shedding, traders said.

"Current market attention is the U.S. non-farm payroll data. If the data is as bad as markets have expected, risk-off sentiment is likely to be restored or strengthened to support the dollar," said a trader at a Chinese bank.

A second trader at a Chinese bank said the yuan also found support on improving onshore dollar liquidity in the second half of the week, as tight month-end dollar funding conditions eased slightly.

Analysts at Ping An Securities said markets saw no need to be overly pessimistic about the exchange rate in the short-term.

The yield gap between China and the United States remained wide with the spread between rates on the benchmark 10-year bonds of both countries CN10YT=RRUS10YT=RR at about 200 basis points.

"This has greatly enhanced the attractiveness of yuan-denominated assets. China's capital account may face a certain level of capital inflows in the second quarter to push the yuan higher," they said.

Some market participants also speculated additional monetary easing could be announced soon, after China flagged further targeted reserve requirement ratio (RRR) cuts to medium and small banks.

"A targeted RRR cut will likely be delivered by the PBOC on Friday," Gao Qi, FX strategist at Scotiabank said in a note.

The global dollar index =USD rose to 100.23 at midday from the previous close of 100.19.

The offshore yuan CNH=D3 was trading at 7.101 per dollar as of midday.

The yuan market at 0351 GMT:

ONSHORE SPOT:

Item

Current

Previous

Change

PBOC midpoint CNY=SAEC

7.1104

7.0995

-0.15%

Spot yuan CNY=CFXS

7.0885

7.0821

-0.09%

Divergence from midpoint*

-0.31%

Spot change YTD

-1.77%

Spot change since 2005 revaluation

16.76%

Key indexes:

Item

Current

Previous

Change

Thomson Reuters/HKEX CNH index

94.04

93.7

0.4

Dollar index

100.23

100.19

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 morning.

OFFSHORE CNH MARKET

Instrument

Current

Difference from onshore

Offshore spot yuan CNH= *

7.101

-0.18%

Offshore non-deliverable forwards CNY1YNDFOR= **

7.1552

-0.63%

*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 Winni Zhou and Andrew Galbraith; Editing by Sam Holmes)

((winni.zhou@thomsonreuters.com; +86 21 2083 0100; Reuters Messaging: winni.zhou.thomsonreuters.com@reuters.net))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Tags

More Related Articles

Sign up for Smart Investing to get the latest news, strategies and tips to help you invest smarter.