SHANGHAI: China's central bank set the yuan's official midpoint slightly stronger against the dollar on Wednesday, and spot prices followed but remained range-bound at midday.
The People's Bank of China (PBOC) set the yuan's midpoint at 6.3391 before the market open, after two days of consecutively weaker fixings.
Spot prices also firmed, opening at 6.3519 per dollar and changing hands within a narrow range by midday. Spot yuan traded at 6.3485 in the early afternoon, the narrowest the spot-midpoint spread has been since mid-May.
A trader at a bank in Shanghai said that there was no sign of a "unilateral" new direction for the yuan in the near term.
"Traders start selling yuan at 6.35 per dollar and buying at 6.37," he said.
The PBOC usually sets the midpoint in reaction to overnight moves in the dollar index, traders said, but this week all eyes have been on the euro, which is the most influential currency in the dollar index's basket.
Euro and dollar traders have remained cautious this week, awaiting fresh developments from the US Fed and the European Central Bank, respectively.
The euro has weakened against the yuan in recent weeks after hitting a 10-year trough in late July. The relative strength of the yuan against the euro has caused pain for Chinese exporters to the euro zone, which buys one-fifth of Chinese exports.
Premier Wen Jiabao said in a recent speech that the country would take steps to support exporters.
FUTURES SPREADS CONTINUE WIDENING
In China, increasing scepticism about the economy, both domestic and global, have caused currency forwards to move away from spot prices, expressing increasing market consensus that the yuan will depreciate against the dollar over the next 12 months.
Spreads continue to widen for offshore one-year non-deliverable yuan forward contracts (NDFs), as they have since mid-July. The contract, which changed hands at 6.4490 in midday trade, has been implying yuan depreciation since March.
The offshore one-year forward contract, on the other hand, has been more optimistic until recently, trading firmer than the spot until early July, when it abruptly swung into negative territory and began tracking the offshore NDF.
Comments
Comments are closed for this article.