Yuan inches up, gains capped as state banks purchase dollars

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SHANGHAI — China’s yuan inched higher

against a weaker dollar on Monday, as investors pushed back

expectations for when the U.S. Federal Reserve will begin

tapering its massive stimulus.

However, gains were capped as sources told Reuters that some

major Chinese state-owned banks were seen buying the greenbacks

in the onshore spot market late on Friday. That had pushed the

yuan sharply weaker, prompting some market participants to

become cautious and wonder about the policy stance.

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Prior to the market opening, the People’s Bank of China

(PBOC) set the midpoint rate at a more than

2-1/2-month high of 6.4529 per dollar, 48 pips or 0.07%,

stronger than the previous fix of 6.4577.

In the spot market, onshore yuan opened at 6.4550

per dollar and was changing hands at 6.4546 at midday, 39 pips

firmer than the previous late session close.

Some currency traders said the state bank actions on Friday

could suggest authorities may want a stable currency for now due

to uncertainties in overseas markets including Fed tapering.

China’s major state-owned banks often act as agents for the

central bank in currency markets, but they also trade on their

own behalf.

The marginal strength in the yuan on Monday morning came as

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some traders saw chances for the Fed to announce the tapering of

bond purchases in September became very narrow after the

downbeat U.S. payrolls.

Fed tapering could boost the dollar and pressure other major

currencies, including Chinese yuan, as a shrinkage in yield

premium could lead to capital outflows from emerging markets.

However, Marco Sun, chief financial markets analyst at MUFG

Bank, said the impact on the yuan could be rather limited this

time round.

“We believe capital outflows will be mostly reflected in the

domestic stock market dominated by retail customers, rather than

in the domestic bond market, which is dominated by institutional

investors,” he said, expecting overseas institutional investors

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to continue purchasing the Chinese government bonds to offset

yuan’s depreciation pressure.

By midday, the global dollar index rose to 92.215

from the previous close of 92.11, while the offshore yuan

was trading at 6.4475 per dollar.

The yuan market at 0400 GMT:

ONSHORE SPOT:

Item Current Previous Change

PBOC midpoint 6.4529 6.4577 0.07%

Spot yuan 6.4546 6.4585 0.06%

Divergence from 0.03%

midpoint*

Spot change YTD 1.14%

Spot change since 2005 28.23%

revaluation

Key indexes:

Item Current Previous Change

Thomson 98.53 98.52 0.0

Reuters/HKEX

CNH index

Dollar index 92.215 92.11 0.1

*Divergence of the dollar/yuan exchange rate. Negative number

indicates that spot yuan is trading stronger than the midpoint.

The People’s Bank of China (PBOC) allows the exchange rate to

rise or fall 2% from official midpoint rate it sets each

morning.

OFFSHORE CNH MARKET

Instrument Current Difference

from onshore

Offshore spot yuan 6.4475 0.11%

*

Offshore 6.6225 -2.56%

non-deliverable

forwards

**

*Premium for offshore spot over onshore

**Figure reflects difference from PBOC’s official midpoint,

since non-deliverable forwards are settled against the midpoint.

.

(Reporting by Winni Zhou and Andrew Galbraith; Editing by

Lincoln Feast.)

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