September 27, 2016 10:59:37 am
China’s yuan was little changed on Tuesday, with the market shrugging off mention of China during the US presidential candidates’ debate and traders saying state banks sold some dollars to support the Chinese currency.
The People’s Bank of China (PBOC) set the midpoint rate at 6.6646 per dollar prior to market open, firmer than the previous fix of 6.6744. The spot market opened at 6.6695 per dollar and was changing hands at 6.6695 as of 0455 GMT, unchanged from the previous late session close and 0.07 percent weaker than the midpoint.
Companies wanted to buy dollars, taking advantage of a firmer midpoint, but spot yuan swung within a very thin range at just stronger than 6.67 per dollar levels as state-owned banks continued providing dollar liquidity, said a Shanghai-based trader at a Chinese bank.
“Big state banks will keep the yuan from breaching 6.67 ahead of the national holiday,” the trader said. The week-long National Day holiday begins on Oct. 1, the same day the yuan is officially included in the International Monetary Fund’s reserve basket, known as Special Drawing Rights (SDR).
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Some traders said the yuan may weaken after the holiday. In China, like elsewhere, many market players followed the U.S. presidential debate. In his opening statement, Republican candidate Donald Trump blamed U.S. job losses on “currency devaluation” by China. But the debate itself did not impact Tuesday’s trading. Analysts said debate comments also had a marginal impact on the offshore yuan market.
Offshore yuan “looks less vulnerable to the U.S. presidential election” than the Canadian dollar and Mexican peso, Ken Cheung, Asian FX strategist at Mizuho Bank in Hong Kong, wrote after the debate.
The PBOC “still keeps the upper hand on defending the CNH if necessary,” he added. The offshore yuan was trading 0.16 percent weaker than the onshore spot at 6.6804 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 6.8411, 2.58 percent weaker than the midpoint.
One-year NDFs are settled against the midpoint, not the spot rate. The global dollar index rose to 95.368 at 0455 GMT from the previous close of 95.297.
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