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China's yuan firms as banks sell US dollars, trade data taken in stride
[SHANGHAI] China's yuan firmed against the US dollar on Monday as banks sold the US currency amid a firmer euro after centrist Emmanuel Macron's victory over the far-right Marine Le Pen in France's presidential election.
Traders also appeared to shrug off weaker-than-expected Chinese trade data for April, while the foreign exchange reserves data for the same month also had little impact in the currency market.
The People's Bank of China set the midpoint rate at 6.8947 per US dollar prior to market open, weaker than the previous fix at 6.8884.
In the spot market, the yuan opened at 6.8990 per US dollar and was changing hands at 6.9010 at midday, after hitting a low of 6.9064 at one point in early trade - 16 pips stronger than the previous late session close but 0.09 per cent weaker than the midpoint.
Traders said the spot rate breached 6.9 per US dollar level and was testing lows in initial trade, but the losses were pared on US dollar sales by banks. The sales were executed on behalf of clients who were locking in profits from their US dollar purchases last week.
"The opening price was the weakest in a while. So that triggered US dollar sales, which offset the impact from some corporate demand for the US unit," said a trader at a Chinese bank in Shanghai.
Traders said the results of the French presidential election, which met market expectations, prevented a feared spike in volatility.
The euro's relief rally had a negative knock-on effect on the dollar index, though it was a touch higher in latest deals at 98.786, from the previous close of 98.648.
Macron was elected French president on Sunday with a business-friendly vision of European integration, defeating Le Pen, a far-right nationalist who threatened to take France out of the European Union.
On the data front, markets took in stride weaker-than-expected goods trade data. China's exports and imports rose in April but missed analysts' expectations, as domestic and foreign demand faltered and commodity prices fell.
There were also signs that recent capital controls are slowing the outflow of funds from China, with data showing April foreign exchange reserves rising for a third straight month.
In bond market, China's benchmark 10-year treasury yields rose to the highest level in nearly two years on Monday, with yields on the five-year sovereign bonds also hit the highest since January 2015.
The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 93.83, weaker than the previous day's 93.86.
The offshore yuan was trading 0.05 per cent weaker than the onshore spot at 6.9047 per US dollar.
Offshore one-year non-deliverable forwards contracts (NDFs), considered the best available proxy for forward-looking market expectations of the yuan's value, traded at 7.1055, 2.97 per cent softer than the midpoint.
One-year NDFs are settled against the midpoint, not the spot rate.