Benchmark one-year Offshore dollar/yuan forwards jumped on Thursday, implying that the yuan will depreciate in 12 months for the first time in 2-1/2 years. Sentiment towards yuan appreciation against the dollar, which had remained very strong for the bulk of the year, had soured dramatically in recent weeks, mainly on a jump in the US Dollar Index, traders said.
In a sign that Beijing may not necessarily stick to a strong yuan policy, the People's Bank of China fixed a weaker mid-point on Thursday, effectively guiding the yuan to remain in the negative territory so far this month. One-year dollar/yuan non-deliverable forwards NDFs jumped to 6.4120 bid in afternoon trade, up sharply from 6.3540 at the close on Wednesday. They implied the yuan will depreciate 0.49 percent in a year, compared with Wednesday's implied yuan appreciation of 0.42 percent.
On August 15, one-year NDFs hit a 2-1/2 year low at 6.2560 bid, implying expectations that the yuan will rise as much as 2.22 percent against the dollar in 12 months. It is the first time benchmark NDFs have implied yuan depreciation since March 2009 - when the dollar index hit multi-year highs. The index values the dollar against six major global currencies dominated by the euro. The index jumped about 1 percent in early European trade on Thursday to a seven-month high of more than 78 amid strong risk-aversion trading after the US Federal Reserve said there were "significant downside risks" to the economy.
The PBOC fixed the day's yuan mid-point slightly weaker at 6.3808 against the dollar on Thursday from Wednesday's record high of 6.3772. The mid-point guided spot yuan to close at 6.3877 on the dollar, down from Wednesday's close of 6.3823. The currency has fallen 0.15 percent so far this month, although it has still risen 3.16 percent this year and 6.86 percent since its depegging in June 2010.
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