Yuan appreciation expectations rebounded in January to their strongest point since mid-September and remain near a four-month high, even as spot yuan softened slightly on Monday. After short covering pressured the yuan at the end of 2011, investors with clean positions and renewed risk appetites poured funds into China-linked assets, including equities, dim sum bonds, and non-deliverable yuan forwards (NDF) in January, traders say.
One-year NDFs traded at 6.2755 late on Monday, a spread of 366 pips over onshore spot, implying 0.58 percent appreciation over the next year. The spread reached a four-month high of 500 pips on January 20, the last trading day before the Lunar New Year holiday. But the current spread is still well above the average 100 pip spread in January.
Spot yuan closed at 6.3121 on Monday, 93 pips weaker than Friday's close, after the central bank set its yuan mid-point at 6.3108, a shade weaker than Friday's fix. The offshore yuan market is also showing signs of renewed appreciation expectations. CNH traded at 6.2990 on Monday afternoon, a 0.21 percent premium over the onshore rate.