China's yuan weakens after widening trading band


  • Economy
  • Monday, 17 Mar 2014

On Saturday, the People's Bank of China doubled the yuan's daily trading range, so that it can now rise or fall 2% from the daily midpoint rate, although in early deals it held with the previous band of +/- 1% - Reuters Photo.


SHANGHAI: The Chinese yuan weakened in opening deals on Monday after the central bank doubled the currency's permitted trading band, a move analysts said was a clear signal authorities are ready to allow market forces to play a greater role in the economy.

The spot yuan opened at 6.1500 per dollar, 0.29% away from the official midpoint rate, and it soon slid to 6.1617 per dollar, down 0.19% from Friday's market close.

The central bank set the midpoint at 6.1321 on Monday morning, 0.04% firmer than Friday's fix.

On Saturday, the People's Bank of China doubled the yuan's daily trading range, so that it can now rise or fall 2% from the daily midpoint rate, although in early deals it held with the previous band of +/- 1%.

The first quote in the foreign exchange trading system was initially reported at 6.1573, but that was later revised to 6.1500.

In Hong Kong, the offshore yuan (CNH) was priced at 6.1555 per dollar, 0.1% stronger than the onshore market. The offshore yuan market is not bound by the midpoint rate.

Analysts said the wider trading band was a sign of confidence the central bank had successfully fought off a plague of currency speculators. It was also seen as a signal that regulators believe the economy is stable enough to handle more promised reforms.

The yuan had ended trading on Friday at 6.15 per dollar and one-year non-deliverable forwards contracts, considered the best available proxy for market expectations of the yuan's future value, were pricing the yuan at 6.2120.

UPS AND DOWNS

Authorities have been trying to change the perception the yuan was a certain one-way bet by demonstrating that it is now more of a genuine market that can go up and down like any other.

The yuan rose 2.9% against the dollar in 2013, outperforming other emerging economy currencies, in a rally that encouraged more one-way bets and led to a dramatic crack down by the central bank.

Indeed, since the beginning of 2014, the central bank had pushed the currency down 1.6% by Friday's close. While not a major move for many currencies, for the yuan it marked a bigger slide than over six months during the Greek debt crisis in 2012.

The currency is not the only uncertainty for investors. Earlier this month, a Chinese company became the first to default on a corporate bond, and worries of slowing economic growth were highlighted by a dramatic 18% fall in exports in February and sluggish manufacturing. – Reuters 


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