SHANGHAI: The yuan fell slightly against the dollar on Monday, shrugging off the central bank's stronger mid-point fixing, weighed by a firmer dollar and more signs of capital outflow from China.
The dollar index bounced 0.25 percent by early afternoon to 80.4 following North Korean state media reports of the demise of the leader of the reclusive nation, Kim Jong-il.
"The North Korean leader's death boosted some safe-haven dollar demand but we cannot see a long term impact on the yuan. The yuan's movements will still be guided by the central bank," a dealer at an Asian bank in Shanghai said.
Dealers said the yuan faced some depreciation pressure after data showed China's central bank and commercial banks were net sellers of foreign exchange in November for the second consecutive month, pointing to capital outflows as Beijing usually buys foreign exchange to rein in the yuan
But the yuan still traded within a narrow range between 6.34 and 6.35 on Monday, underlining the central bank's intention to keep the Chinese currency stable.
"The central bank's most important aim is to keep the yuan stable amid an unstable global economy," the Asian bank dealer said.
Indeed, the yuan jumped to a record high last Friday against the dollar on suspected intervention orchestrated by the central bank, its most explicit action in three months to deter speculators from betting on a fall in the currency.
Spot yuan was trading 6.3520 against the dollar at midday, down slightly from 6.3484 at the close on Friday.
The yuan has still risen 3.74 percent so far this year and 7.47 percent since it was depegged in June 2010.
Before trading began, the PBOC fixed the day's mid-point at 6.3303, stronger than Friday's 6.3352. The central bank uses the fixing to express the government's intention for the yuan's daily movement.
Benchmark offshore one-year dollar/yuan non-deliverable forwards (NDFs) have largely been forecasting yuan depreciation in a year's time since late September, reversing a trend of appreciation since the yuan's revaluation in July 2005.
One-year NDFs were bid at 6.4170 on Monday against 6.4060 at the close on Friday, implying that the yuan would depreciate 1.37 percent in 12 months from Thursday's PBOC mid-point, compared with a 1.20 percent fall implied on Friday.
Copyright Reuters, 2011
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