Updated Wednesday, March 3, 2010 10:59 am TWN, Bloomberg
China's yuan slips as central bank sets weaker reference rate
BEIJING -- China's yuan forwards fell, retreating from a four-week high, after the central bank set the currency's reference rate at a weaker level; bonds advanced.
The currency may face increasing appreciation pressure as relatively high domestic interest rates encourage international funds to enter the country, Yi Gang, head of the State Administration of Foreign Exchange, said Monday. The daily fixing was 6.8268, compared with a level Monday of 6.8267 that matched the strongest rate in nine months.
"It was a one-pip increase in the fixing rate, so that explains the move in the forwards," said Tim Condon, chief Asia economist at ING Groep NV in Singapore.
Twelve-month non-deliverable forwards fell 0.2 percent to 6.6495 per dollar as of 5:37 p.m. in Shanghai, after Monday touching 6.6365, the strongest level since Feb. 3, according to data compiled by Bloomberg. The contracts reflect traders' bets that the currency will strengthen 2.7 percent from the spot rate of 6.8265. Condon forecasts the yuan will start to appreciate in the second quarter.
China has held the spot rate at about 6.83 since July 2008 to help exporters weather a slump in demand as consumers around the world cut spending due to the global recession.
Net capital inflows may increase this year due to an improvement in trade and rising foreign investment, Yi, who is also deputy governor of China's central bank, wrote in an article posted on the Beijing-based regulator's Web site.
The People's Bank of China sold one-year bills Tuesday at a yield of 1.9264 percent, unchanged for a fifth straight auction. The monetary authority guided the rate higher twice in January to help drain cash from the money market amid record lending growth that threatened to stoke inflation.
China's yuan slips as central bank sets weaker reference rate
BEIJING -- China's yuan forwards fell, retreating from a four-week high, after the central bank set the currency's reference rate at a weaker level; bonds advanced.
The currency may face increasing appreciation pressure as relatively high domestic interest rates encourage international funds to enter the country, Yi Gang, head of the State Administration of Foreign Exchange, said Monday. The daily fixing was 6.8268, compared with a level Monday of 6.8267 that matched the strongest rate in nine months.
"It was a one-pip increase in the fixing rate, so that explains the move in the forwards," said Tim Condon, chief Asia economist at ING Groep NV in Singapore.
Twelve-month non-deliverable forwards fell 0.2 percent to 6.6495 per dollar as of 5:37 p.m. in Shanghai, after Monday touching 6.6365, the strongest level since Feb. 3, according to data compiled by Bloomberg. The contracts reflect traders' bets that the currency will strengthen 2.7 percent from the spot rate of 6.8265. Condon forecasts the yuan will start to appreciate in the second quarter.
China has held the spot rate at about 6.83 since July 2008 to help exporters weather a slump in demand as consumers around the world cut spending due to the global recession.
Net capital inflows may increase this year due to an improvement in trade and rising foreign investment, Yi, who is also deputy governor of China's central bank, wrote in an article posted on the Beijing-based regulator's Web site.
The People's Bank of China sold one-year bills Tuesday at a yield of 1.9264 percent, unchanged for a fifth straight auction. The monetary authority guided the rate higher twice in January to help drain cash from the money market amid record lending growth that threatened to stoke inflation.