Yuan falls as dollar rebounds but uptrend intact

By Lu Jianxin and Saikat Chatterjee

SHANGHAI (BestGrowthStock) – The yuan fell in the spot and offshore forwards markets on Monday after the dollar’s global rebound driven by a strong U.S. payrolls report, allowed the People’s Bank of China to fix a weaker yuan mid-point.

Dollar/yuan non-deliverable forwards extended rises in early trade after the benchmark one-year NDFs scored their biggest daily spike in more than a week on Friday, taking its cue from a stronger U.S. dollar index (Read more about the global trade. ) (.DXY: ).

Spot yuan dropped in line with the PBOC’s fixing after it rallied 0.67 percent over the past four trading days as the global dollar rebound permitted the central bank to generate two-way trading for the Chinese currency.

Dealers said they continue holding the view that the yuan can appreciate to around 6.6 against the dollar sometime before the end of this year due to China’s much stronger economic growth than the United States and external pressures.

China faces a slew of political events this month, including a meeting between President Hu Jintao and his U.S. counterpart Barack Obama on November 11 at a Group of 20 summit in Seoul, which will add pressure on the yuan to appreciate against the dollar.

But by allowing the Chinese currency to trade either way and over a relatively wider range, Beijing can somewhat relieve domestic pressures by showing it is not yielding to external demands to let the yuan appreciate, traders said.

“Our forecasts (for yuan appreciation) will not be affected by a day or a short period of yuan falls,” said a senior dealer at a major European bank in Shanghai.

“China’s economic fundamentals and the pressure it is under argue for the yuan to appreciate at least in the near term.”

One-year dollar/yuan NDFs rose to 6.4600 bid in late morning trade from 6.4360 at Friday’s close, with their implied 12-month yuan appreciation falling to 3.24 percent from Friday’s 3.62 percent based on Monday’s PBOC fixing.

In the spot market, the yuan was trading at 6.6653 versus the dollar, down from Friday’s close of 6.6566. The currency has now risen 2.41 percent since its depegging to the dollar in mid-June.

The PBOC set the mid-point, or its reference rate from which the yuan can rise or fall 0.5 percent in a day, at 6.6692 on Monday from Friday’s 6.6610.

(Editing by Jacqueline Wong)

Yuan falls as dollar rebounds but uptrend intact