Spot yuan closed slightly higher against the dollar on Monday as the central bank signalled it did not want steep depreciation but the Chinese currency tumbled in the offshore forwards market as concern mounted over the health of China's economy and asset markets.
One-year dollar/yuan non-deliverable forwards jumped to a one-year high of 7.1180 bid in late trade on Monday from Friday's close of 6.9523. Their latest level implied yuan depreciation of 4.18 percent against the dollar over the next 12 months from Monday's mid-point set by the central bank. Last month, NDFs began implying 12-month yuan depreciation for the first time in five years.
The stock market's benchmark Shanghai Composite Index, which surged 21 percent from a 22-month low late last month in response to a government rescue package for the stock market, closed down 5.23 percent on Monday as fears of a global economic slowdown again dominated the market.
One-year dollar/yuan volatilities hit a multi-year intraday high of 11.50 percent bid on Monday, implying the market was increasingly uncertain over the yuan's long-term prospects. Also underlining the uncertainty, the spreads between one-year NDFs' bid and ask prices briefly widened to two or three times their usual size in intraday trading on Monday.
The spot yuan rate edged higher against the dollar to end at 6.8430 compared with 6.8485 on September 26, the last day of trade before the onshore market closed for a week-long national holiday. Traders attributed the spot rate's firmness to the Chinese central bank's choice of a relatively strong daily reference rate.
It set Monday's yuan mid-point against the dollar at 6.8321, which was down from 6.8183 on September 26 but only reflected a small part of the dollar's global strength over the past week. The yuan's mid-point against the euro was set a massive 6.69 percent higher at 9.3303.