Yuan little changed, market awaits Tuesday trade data

SHANGHAI: The yuan was little changed on Monday as the Easter holiday in some markets damped trading volumes, while some banks bought dollars in anticipation of a possible domestic oil shortage that could raise import demand.

Spot yuan was down 6 pips at 6.3069 by midday, giving back a portion of Friday's 90-pip gain.

"Citibank and other foreign banks are buying a lot of dollars. Everyone is wondering whether there will be an oil shortage, but bank hasn't moved," said a trader at a major Chinese commercial bank in Beijing.

In comments released on Friday afternoon, the head of the National Energy Administration said China may face tight energy supplies in some regions.

The market will be closely watching trade data due to be released on Tuesday for clues on the trend in China's trade balance.

Exports were lower than expected in January and February, but analysts were uncertain how much seasonal factors were to blame, particularly for the large trade deficit posted in February.

But in a market still tightly controlled by the central bank, the trade figures will mainly influence spot trading through expectations about the data's impact on the central bank's daily midpoint fixing, traders say.

The midpoint is the base rate that the central bank uses to signal the government's intentions for the yuan's value, and from which the yuan is allowed rise or fall 0.5 percent in a single day.

A third month of weak exports could raise expectations that the central bank will use the midpoint to keep the yuan unchanged or even guide it slightly lower.

OFFSHORE SPREAD

The dollar/yuan rate closed below the central bank's midpoint on Friday for the first time in seven trading days.

Traders said downward pressure on the yuan since late March was the result of importers taking advantage of the stronger yuan onshore compared with the offshore rate in the spot and forward markets.

"Recently, forex buy orders have been relatively large because - whether it's spot or forward - the onshore price is the lowest," said a trader at foreign bank in Shanghai.

A stronger yuan onshore creates an incentive for net dollar buyers - mainly Chinese importers - to shift their transactions onshore, while net dollar sellers - mainly exporters - move their yuan purchases to the offshore market.

In the offshore non-deliverable market, one-year NDFs implied 0.38 percent appreciation on Monday, unchanged from Friday's close.