Yuan ends down

Spot yuan closed down against the dollar on Friday, but still traded above the mid-point set by the People's Bank of China as the dollar dropped 0.6 percent in global markets on Thursday. The market mostly expects more yuan appreciation, dealers said, but as the Chinese currency had already risen quickly during the G20 meeting, it was likely to hover around recent levels in the near term.
"It has appreciated a lot recently under international pressure. Now it's time for the yuan to have a rest," said a dealer at a European bank in Shanghai. "But we still expect that the yuan will continue to appreciate in the future." Spot yuan ended at 6.6395 versus the dollar, down from Thursday's close of 6.6336 but was still up 2.81 percent since the PBOC announced a depegging of the two currencies in mid-June.
It moved in a small range of 6.6352 to 6.8385, trading above the central bank's daily mid-point of 6.6408, stronger than Thursday's 6.6455. The mid-point or reference rate is a level from where the yuan can rise or fall 0.5 percent in a day. Dealers said that in the long term, the yuan's appreciation was an inevitable trend as China needs to fight against imported inflation amid surging commodity prices and cushion capital inflows including those from trade and foreign direct investment.
And dealers still expect China to let the yuan touch 6.6 per dollar at some point this year, possibly when the US Treasury prepares to publish its twice-yearly currency report that was delayed from mid-October and could name China as a currency manipulator.
"Rising inflation is a serious problem," the European bank dealer said. "We cannot rule out the possibility that the central bank may increase the interest rate and let the yuan appreciate simultaneously in the future."
A wave of risk aversion was taking its toll on one-year dollar/yuan NDFs, which were testing 6.5100 percent for the second time in nearly a month. The level is a key support with a few stops bunched around there. A comprehensive break might push one-year NDFS up to 6.55 - a two-month peak.
One trader at a European Bank said the outsized moved in the US Treasury market was also not helping sentiment at a time when trading activity is being wound down before the year-end. One-year NDFs rose to 6.4560 bid late on Friday, from 6.4520 at Thursday's close, with their implied 12-month yuan appreciation falling to 2.86 percent from 3.00 percent.