China's yuan edges up to 3-week high, money rates down

[SHANGHAI] China's yuan rose to a more than three-week high against the US dollar on Thursday, helped by corporate dollar sales, while interbank money rates fell after the central bank injected funds into the banking system.

The People's Bank of China set the midpoint rate at 6.8629 per US dollar prior to market open, firmer than the previous fix of 6.8632.

The spot market opened at 6.8608 per US dollar and hit a high of 6.8464 per US dollar at one point in morning trade, the strongest level in more than three weeks.

By midday, it was changing hands at 6.8575, 135 pips firmer than the previous late session close and 0.08 per cent stronger than the midpoint.

The strength in the spot market was in part due to heavy corporate dollar sales, traders said, adding this might be because of official window guidance, forcing some companies to liquidate US dollar positions.

"If strong corporate dollar sales continue, the yuan may probably see a turning point, as long as the dollar hovers at the current level," said a Shanghai-based trader at a Chinese bank.

Some traders said market participants were not very willing to short the Chinese yuan, concerned that the authorities were putting a floor under the currency.

In the money market, primary money rates fell on Thursday after the central bank injected incremental funds through different channels.

The volume-weighted average rate of the benchmark seven-day repo traded in the interbank market, considered a key indicator of general liquidity, was 2.5796 per cent at midday, more than 18 basis points lower than the previous day's closing average rate.

The falls in the money rates came after the PBOC lent 393.5 billion yuan (S$81.41 billion) to financial institutions on Wednesday through its medium-term lending facility, or MLF.

The fresh MLF loans more than doubled the size of maturing loans on the same day. One batch with a total value of 151.5 billion yuan was set to mature on Wednesday. Another batch of 53.5 billion yuan would expire on Sunday, according to Reuters calculations based on official data.

And in open market operations, the PBOC injected 250 billion yuan through reverse repurchase agreements on Thursday morning, while 150 billion yuan of such repos was set to mature, resulting in the first daily net injection in more than three weeks.

But the central bank had still drained a net 230 billion yuan from the money market so far this week via open market operations, and an additional 70 billion yuan of reverse repos will mature on Friday.

Meanwhile, temporary liquidity facility (TLF) loans maturing on Thursday would not be rolled over at some major Chinese commercial banks, two banking sources with direct knowledge of the matter told Reuters.

There was no apparent impact on the market, and one of the sources said liquidity conditions would not be affected.

The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 95.38, weaker than the previous day's 95.43.

The global US dollar index fell to 100.93 from the previous close of 101.18.

The offshore yuan was trading 0.13 per cent firmer than the onshore spot at 6.8488 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 7.0756, 3.01 per cent weaker than the midpoint.

One-year NDFs are settled against the midpoint, not the spot rate.

REUTERS