[HONG KONG] China's yuan took a breather on Thursday after gaining for four consecutive days as investors consolidated positions ahead of data next week that will likely show the economy expanded at its slowest pace in 24 years.
While growth this year is expected to average around 7 per cent, data on Thursday showing slower-than-expected bank lending in December indicate headwinds still remain in the form of a property sector slowdown and bloated debt.
Chinese banks extended 697.3 billion yuan (US$112.6 billion) in new yuan loans for December compared with a Reuters estimate of 852.7 billion yuan. China is due to release GDP data for the fourth quarter on Jan. 20.
The People's Bank of China set the midpoint rate at 6.1193 per dollar prior to market open, firmer than the previous fix 6.1205.
The spot market opened at 6.1945 per dollar and was changing hands at 6.1957 in late morning trades, 1.25 per cent weaker than the midpoint. The spot rate is currently allowed to trade within a range of 2 per cent above or below the official fixing on any given day.
Offshore yuan was trading in line with the onshore spot at 6.1965 per 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 6.2905, down 2.72 per cent from the midpoint.
One-year NDFs are settled against the midpoint, not the spot rate, and now that the trading band has been widened to 2 per cent in either direction, corporates are much warier of using the NDF to hedge given the basis risk inherent in them.