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The yuan fell sharply against the dollar in the offshore non-deliverable forwards market on Thursday in the wake of monetary easing by China's central bank. One-year dollar/yuan NDFs were quoted at 6.9800 bid by Citibank Singapore, while other major banks provided similar quotes. On Wednesday, the NDFs closed at 6.8300.
Their latest level implied yuan depreciation over the next 12 months from the day's spot mid-point against the dollar of 2.34 percent. This week, one-year NDFs began implying yuan depreciation for the first time in five years, after a plunging Chinese stock market and an unexpected monetary easing by China's central bank fuelled worries about the health of China's economy and asset prices.
The central bank eased policy further on Thursday, allowing the yield on its three-month bills to fall at auction for the first time in over six months, and lowering the rate on its 28-day bond repurchase operations for the first time this year.
"Trading is choppy in the NDF market today and there are strong indications of excessive speculation, which is making some of the moves quite irrational," said a US bank dealer in Shanghai. "But everybody is worried about the prospects for the Asian economy, and most believe China cannot escape the overall trend."

Copyright Reuters, 2008

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