October 6, 2011Traders Once Again Expect Yuan to Rise
Hong Kong, Traders outside mainland China are once again pricing in a yuan appreciation over the next year after expecting a depreciation for almost a week, as investors' appetite for the emerging-market currency is recovering amid somewhat easing concerns over the euro zone's debt crisis.
Despite thin trades, the offshore yuan rose against the dollar in both the nondeliverable forwards and spot markets on Thursday, tracking the rebound in the euro and other Asian currencies. One-year dollar-yuan NDFs fell to 6.3760/6.3860 from 6.4040/6.4045 late Tuesday, implying a 0.1% rise in the yuan against the U.S. dollar over the next year compared with the onshore spot rate Friday. Yuan NDFs are mostly traded in Hong Kong, where markets were closed for a holiday Wednesday. Chinese domestic markets are closed this week for the National Day holiday.
Late Friday, one-year dollar-yuan NDFs rose to 6.4170/6.4280, implying a 0.5% fall in the yuan against the U.S. currency over the next 12 months.
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In Hong Kong, where the Chinese currency is traded freely, the dollar-yuan exchange rate was at 6.4375 yuan, down sharply from 6.4805 yuan late Tuesday.
"The rebound reflects improvement in global market sentiment as well as a recovery in the Chinese [purchasing managers' index]," said Crédit Agricole senior economist Dariusz Kowalczyk in a report. China's official purchasing managers' index recorded a second straight increase in September to 51.2, from 50.9 in August, assuaging some concerns of slowing growth.
Traders said they expect the People's Bank of China to continue to allow the yuan to appreciate next week and to likely fix the yuan at strong rates against the dollar in a bid to tame rising inflation.
As well, the resumption of a facility by BOC Hong Kong (Holdings)Ltd., Hong Kong's sole yuan-clearing bank, to buy yuan from other banks at an onshore rate in Hong Kong to settle trades will ease selling pressure in the offshore spot yuan market, Mr. Kowalczyk said.
BOC Hong Kong had temporarily stopped buying yuan to settle physical trades since Sept. 23 because it had exhausted its quota for the third quarter as Hong Kong-based exporters, concerned about the value of offshore yuan, quickly converted yuan earned onshore into foreign currencies via the mechanism.
Under the new quota in the fourth quarter, banks will be able to exchange as much as eight billion yuan for trade settlement through BOC Hong Kong from Oct. 10, up from four billion yuan in the last quarter, a person familiar with the situation said earlier
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