The yuan was firm against the dollar in the spot and offshore forwards markets on Friday as Premier Wen Jiabao repeated Chinas pledge to keep it stable. "Our goal is to maintain the basic stability of the yuan at a reasonable and balanced level," Wen told a news conference to mark the end of the annual session of Chinas parliament, adding that China alone would decide yuan exchange rates.
After Chinese economic data this week suggested fiscal stimulus might achieve an early economic recovery despite weak exports and industrial production, traders said Beijing was apparently comfortable with the idea of keeping the yuan flat against the dollar in coming weeks, and possibly much longer.
"After Wens reaffirmation, its even safer to say that the yuan wont move much, at least for coming weeks and maybe months," said a dealer at a major European bank in Shanghai. Dealers think the central bank will keep the yuan in the 6.83-6.86 range, which it has maintained since the start of this year.
The Swiss National Banks decision on Thursday to weaken the franc against the dollar, in order to fight deflation and stimulate its economy, had no impact on the onshore or offshore yuan markets. China appears much closer to economic recovery than Switzerland. So traders see very little chance of China responding to its own slide into consumer price deflation, announced earlier this week, with currency depreciation.
And after Wens strong statement on Chinas determination to control its exchange rates, the market paid little attention to a statement by US Trade Representative-designee Ron Kirk on Thursday that Washington would examine whether Chinas currency practices were consistent with Beijings obligations under the World Trade Organisation. With the United States needing Chinese cooperation to get through the global financial crisis, the market does not think Washington is willing to provoke a serious tussle with Beijing on the currency issue.
Spot yuan traded in a tiny range of 6.8370-6.8390 on Friday before closing at 6.8380, up marginally from Thursdays finish of 6.8388. Earlier, the Chinese central bank set its daily mid-point at 6.8334 against 6.8339. Dealers said this weeks softness of the US Dollar Index had for now removed any possibility of the central bank moving the mid-point out of the 6.8300-6.8399 range that it has maintained since mid-December.
One-year dollar/yuan non-deliverable forwards were at 6.9520 bid in late trade against Thursdays close of 6.9540, implying yuan depreciation of 1.71 percent over the next 12 months from the days mid-point, compared with 1.73 percent implied at the close on Thursday. One-year dollar/yuan volatilities fell slightly to 7.75 percent bid from 8.00 percent at Thursdays close.
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