Offshore yuan forwards (NDFs) edged down against the dollar on Monday after China reported on the weekend its first monthly trade deficit in 6 years, which may decrease expectations for a rise in the yuan. The General Administration of Customs said on Saturday that China's $7.24 billion deficit in March, the first time the trade balance has been in the red since April 2004, mainly reflected strong imports of oil, raw materials and cars.
Dollar/yuan one-year non-deliverable forwards were bid at 6.6205 on Monday, up slightly from Friday's close of 6.6055. Twelve-month yuan appreciation implied by NDFs fell slightly to 3.10 percent measured from the Chinese central bank's daily mid-point, versus 3.34 percent implied at the previous close. "Unless there is a strong rebound from the deficit, yuan policy remains uncertain for now," said a trader at a European bank in Hong Kong. A trader at an Asian bank in Shanghai said.
"Trade data will be a very important factor for yuan appreciation, so the central bank may not allow an imminent yuan rise." Yao Jian, the commerce ministry's spokesman, said on its website on Saturday that the trend towards a better balance in China's trade reinforces the case for the yuan to remain basically stable. "The continuous improvement in China's international trade balance has created the conditions for the yuan's exchange rate to stay basically stable," Yao said.
The Chinese central bank fixed the yuan's daily mid-point, or its reference rate from which the currency can move as much as 0.5 percent during the day, at 6.8259 per dollar, compared with 6.8260 in the previous session, showing no signs of an imminent rise in the value of the Chinese currency. Spot yuan closed at 6.8257 yuan per dollar on Monday, down slightly from Friday's close of 6.8239, a 6-month closing high.
Markets were not swayed in late trade by loans growth and foreign exchange data showing smaller than expected gains, which analysts said would give the authorities more breathing space on the policy front. China's foreign exchange reserves, the world's largest, rose by $47.9 billion in the first quarter to $2.4471 trillion, lower than economists expectations of $2.545 trillion.
The market is also awaiting the outcome of talks between the United States and China which may influence yuan policy, dealers said. Chinese President Hu Jintao will meet President Barack Obama on the sidelines of a nuclear security summit in Washington, and the issue of the Chinese currency may be raised.