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UPDATE: China Yuan Up Late On Continued Appreciation Expectations

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* APRIL 30, 2010, 5:53 A.M. ET

UPDATE: China Yuan Up Late On Continued Appreciation Expectations

(Adds closing price.)

Vs Parity Pvs
USD/CNY Central Parity 6.8263 6.8265
USD/CNY OTC 0930 GMT 6.8252 -0.02% 6.8259
High 6.8266 0.00%
Low 6.8252 -0.02%

SHANGHAI (Dow Jones)--China's yuan rose against the U.S. dollar late Friday afternoon, as expectations that the Chinese currency will soon appreciate against U.S. unit boosted demand for the yuan.

On the over-the-counter market, the dollar was at CNY6.8252 at 0930 GMT, down from Thursday's close of CNY6.8259. It traded between CNY6.8252 and CNY6.8266.

The dollar-yuan central parity rate was set at 6.8263, down marginally from 6.8265 Thursday.

Dealers said expectations of an immediate appreciation in the yuan spurred demand for the Chinese currency ahead of the Labor Day holiday, which starts Saturday, as Beijing has traditionally announced big policy changes during holidays.

China's foreign-exchange market will be closed Monday for the holiday.

The dollar was higher against the yuan for most of Friday's session as investors bought dollars because of supply concerns after China said Thursday it cut its short-term outstanding foreign debt quota for 2010 by 1.5% compared with 2009, in an attempt to prevent irregular cross-border fund inflows.

Companies have increasingly been taking out loans denominated in dollars because of low dollar lending rates and expectations that the yuan will appreciate, thereby lowering their borrowing costs.

Dealers said supply concerns have mostly been priced in recent sessions and they expect dollar liquidity to remain ample.

"News that Beijing would reduce the foreign-debt quota for this year has been circulating in the market over the past two weeks," said a Shanghai-based trader at a foreign bank.

"For most banks, a 1.5% reduction will have a limited impact on their dollar liquidity," he said.

Barclays Capital analyst Wensheng Peng said the reduction in China's short-term foreign debt quota is part of its efforts to smooth the transition to a more flexible exchange rate and could be a sign that Beijing may be preparing to adjust its exchange-rate policy soon.

He said he expects China to widen the trading band for the dollar-yuan pair as early as the next few weeks.

China's central bank allows the dollar-yuan rate to move no more than 0.5% above or below the central parity rate in each session. The range was widened from 0.3% in May 2007.

In the offshore market, one-year dollar-yuan nondeliverable forwards were at 6.6120/6.6160, up slightly from 6.6110/6.6150 late Thursday.

-Rose Yu contributed to this article, Dow Jones Newswires; 8621 6120-1200; rose.yu@dowjones.com

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