The yuan ended up against the dollar on Tuesday guided by the People's Bank of China's stronger mid-point, but dealers said the potential for the yuan to rise sharply will be very limited in the near term due in part to weak data from major global economies from the United States to Japan.
The PBOC set the yuan's mid-point, its reference rate from where the yuan could rise or fall 0.5 percent in a day, at 6.7979 to the dollar, up from Monday's 6.8064 in an apparent move to soothe sentiment after the central bank let the yuan fall over the past week in the wake of a global dollar rebound.
Spot yuan closed at 6.7921 versus the dollar, up from Monday's close of 6.8082. "The central bank knows clearly that too weak a yuan would create an unnecessary re-surfacing of pressure from some of its trade partners, in particular the United States," said a dealer at a major Chinese commercial bank in Shenzhen. The yuan rose as high as 0.91 percent against the dollar since it was depegged on June 19, but it now stands only 0.50 percent higher. The yuan's nominal effective exchange rate (NEER), or its value against a trade-weighted basket, depreciated 1.45 percent in July over June, according to the Bank for International Settlements (BIS).
The yuan's real effective exchange rate (REER), adjusted for inflation, dropped 0.92 percent in the same period, the BIS data published late on Monday showed. In spot trading, the yuan appreciated a minor 0.09 percent against the dollar in July but depreciated 6.16 percent against the euro and was down 2.57 percent versus the yen in the month.
Offshore, dollar/yuan non-deliverable forwards (NDFs) fell to imply more yuan appreciation as foreign houses shorted dollars, taking cues from the PBOC's mid-point. Benchmark one-year NDFs were bid at 6.6730 in late afternoon from Monday's close of 6.6890, with their implied 12-month yuan appreciation rising to 1.87 percent from 1.76 percent.
Comments
Comments are closed.