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Chinese c.bank sets yuan mid-point at 6.8262

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littlekracker



Chinese c.bank sets yuan mid-point at 6.8262
Mon Apr 26, 2010 9:21pm EDT

SHANGHAI, April 27 (Reuters) - The People's Bank of China
(PBOC) fixed the yuan's daily mid-point CNY=SAEC against the
dollar on Tuesday little changed, showing its intention to keep
the yuan stable for now despite sharp volatility in the onshore
dollar/yuan forwards market since early last week.

Mid-point Previous day's mid-point Previous day's close

6.8262 6.8263 6.8266

Onshore dollar/yuan forwards have plunged since last week as
some Chinese banks and corporates rushed into selling dollars for
local currency amid expectations that China may allow the yuan to
resume appreciation in the near term.

A fall in forwards, which typically reflects speculation of a
bigger potential for the local currency to appreciate in future,
is not much the case for China's onshore market.

Fluctuations in onshore forwards typically reflect interest
rate spreads between Chinese and U.S. interest rates and the
dollar supply situation, in other words, actual money demand.

The volatility in onshore forwards does not imply the Chinese
market is independently forecasting more yuan appreciation,
although it does reflect some Chinese response to strengthening
yuan appreciation expectations overseas.

Expectations that China will let the yuan resume its rise, in
one form or another, have grown recently. Market participants are
speculating that the yuan could be depegged soon or possibly by
mid-year, although many do not expect the Chinese government to
opt for a one-off revaluation.

The PBOC, the Chinese central bank, issues the mid-point data
through the interbank market, the China Foreign Exchange Trade
System (www.chinamoney.com.cn).

The yuan CNY=CFXS may rise or fall 0.5 percent from its
mid--point each day, but it has moved only a small fraction of
its band in most trading sessions since it was revalued by 2.1
percent to 8.11 per dollar on July 21, 2005.

In the three years following the revaluation, the central
bank allowed the yuan to appreciate a further 19 percent against
the dollar. The yuan's traded peak since the revaluation was
6.8099, reached on Sept. 23, 2008.

Since July 2008, however, the central bank has used the
mid-point to keep the yuan at a virtual peg to the dollar within
a narrow 100-pip range, to protect China's economy as it
confronted a slowdown due to the global financial crisis.
(Reporting by Lu Jianxin and Jacqueline Wong)

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