SHANGHAI: The yuan weakened slightly against the dollar on Monday as firms demanded less cash after the long holiday, though the Chinese currency briefly touched a record high in early trade before banks finished adjusting their currency portfolios.
The yuan last hit an all-time high on Sept. 28, the last trading day ahead of a week-long holiday, amid strong corporate demand for yuan and banks' efforts to avoid carrying short yuan positions over the long break.
In September, the currency scored its biggest monthly this year, rising 1 percent as the third round of US quantitative easing (QE3) weakened the dollar and sparked interest in riskier assets such as emerging market currencies.
But with two record highs being hit in succession, propelled by corporate position adjustments to accommodate temporary yuan demand during the break, the currency appeared to have reached its peak and should depreciate slightly in the near term, traders said.
"Except for a final round of holiday-driven position adjustments in early trade today, the trend for the yuan to correct is quite clear," said a trader at a Chinese state-owned bank in Shanghai.
Spot yuan was trading at 6.2864 versus the dollar by late morning, weaker than the 6.2849 level where it closed on Sept. 28. It earlier touched an intraday high of 6.2812, its strongest since China set up the domestic foreign exchange market in 1994.
Before trading began, the People's Bank of China (PBOC) set the yuan's midpoint at 6.3426, slightly weaker than 6.3410 on Sept. 28.
The PBOC has set a slew of midpoints much weaker than the yuan's trading levels since mid-September, in what traders said was a sign that the central bank was acting to prevent renewed speculation on yuan appreciation after QE3.
Traders said they expected the yuan to weaken below 6.30 against the dollar in next one or two weeks but should be able to find short-term support at 6.33 in the near term, barring major movements in the dollar index in global markets.
Despite the yuan's recent strength, offshore forwards markets continued to imply spot yuan depreciation against the dollar in the future, reflecting investors' caution over the yuan's value amid China's economic slowdown.
Benchmark one-year dollar/yuan non-deliverable forwards were bid at 6.3927 on Monday morning, implying yuan deprecation of 0.78 percent in next 12 months from Monday's PBOC midpoint.
China has reported a slew of weak economic data since April, indicating the world's second largest economy is slowing at a pace worse than the market had expected.
China's official factory purchasing managers' index rose to 49.8 in September from 49.2 in August, the National Bureau of Statistics said last week, but remained in contractionary territory.
August had marked the lowest reading since November 2011, as China struggles with cooling exports, factory output and fixed asset investment.
Comments
Comments are closed for this article.