Yuan slips

The yuan reversed earlier gains to fall slightly against the dollar in the spot and offshore non-deliverable forwards (NDFs) markets late on Monday, with sentiment hurt by poor Chinese economic data. Spot yuan finished at 6.8230 versus the dollar from Friday's close of 6.8218 after it initially hit an intraday high of 6.8209 in early trade.
Offshore, one-year dollar/yuan non-deliverable forwards (NDFs) rose to be bid at an intraday high of 6.7290 late on Monday from Friday's close of 6.7200. Their latest level implied yuan appreciation of 1.38 percent over the next 12 months from the day's spot mid-point, compared with 1.52 percent implied at Friday's close.
In intraday trading, however, the NDFs hit a low of 6.7050 bid, implying yuan appreciation of as much as 1.74 percent. China's annual consumer prices in April fell 1.5 percent from a year earlier, marking the third consecutive month of deflation, the National Bureau of Statistics said on Monday. Producer prices in April fell 6.6 percent from a year earlier, accelerating its pace of decline from a 6.0 percent drop in March.
Later on Monday, the People's Bank of China said that annual growth in China's broad M2 measure of money supply rose to a record 26.0 percent in April from 25.5 percent in March. Chinese banks issued 592 billion yuan ($86.8 billion) of new yuan loans in April, sharply down from a record high in March, but the earlier lending spree still left total local-currency loans 29.7 percent higher than a year earlier, close to March's year-on-year reading of 29.8 percent.
Yuan lending in the first four months totalled 5.17 trillion yuan. That already tops what the government had said was its minimum target of 5 trillion yuan over all of 2009 to support economic growth.
April's CPI, PPI and new lending figures appeared to be quite weak, but most economists still agreed with policy makers that the declines were not a cause of great concern. "The figures were in line with our expectations, and we expect CPI to remain negative in the first half," said Tang Jianwei, analyst with Bank of Communications in Shanghai. "Our estimate is that the carry-over effect is -1.9 percent. Stripping out the carry-over effect, prices actually increased 0.4 percent in the 12 months to April," he said. "The central bank is unlikely to move on this pair of figures. We don't think the central bank is going to cut interest rates any time soon."