China's yuan flat, faces downward pressure if US dollar rises sharply

[SHANGHAI] China's yuan barely budged against the US dollar by midday on Monday, despite a softer official guidance rate, and after comments made by a central bank advisor about potential bearish pressure on the Chinese currency in the near term.

The yuan will come under renewed downward pressure if the US dollar rises significantly in coming months, a policy adviser to the People's Bank of China (PBOC) said on Friday.

The PBOC set the midpoint rate at 6.5232 per US dollar prior to the market open, only 0.01 per cent weaker than the previous fix 6.5223.

In the spot market, the yuan opened at 6.5180 per US dollar and was changing hands at 6.5150 at midday, unchanged from the previous close.

The spot rate quickly moved towards the midpoint in opening trade but it had firmed to Friday's closing level by around midday.

Traders reported a dominant US dollar-selling mood in the morning trade despite the greenback's continued broader strength on Monday morning.

"The fact that most strike prices were below the daily fix indicates the midpoint was softer than the market expected, which is not necessarily a signal from the PBOC to let the yuan slide. Overall the midpoint has been largely in line with the basket," said a trader at an European bank in Shanghai.

The latest China Foreign Exchange Trade System data showed that the index for the yuan's value based on the market's trade-weighted basket rose to 98.16 last week after three straight weekly declines, making a 0.11 per cent gain from the week of March 14-18.

On Monday, the onshore yuan stayed flat against the euro by midday at 7.2705. It firmed 0.5 per cent against the Japanese yen, hovering at 5.7341 to 100 yen.

The offshore yuan was trading 0.18 per cent softer than the onshore spot at 6.5266 per US dollar.

Offshore one-year non-deliverable forwards contracts, considered the best available proxy for forward-looking market expectations of the yuan's value, traded at 6.706, 2.73 per cent weaker than the midpoint.

REUTERS