Views Article – Sharenet Wealth

Asia, Forex

Yuan weakens, volatility low amid tepid hopes for trade talks progress

SHANGHAI, July 26 (Reuters) – China’s yuan eased on Friday after the central bank set a slightly weaker midpoint for the currency’s daily trading band, but trade was subdued ahead of Sino-U.S. trade talks next week. Senior trade officials from the United States and China are due to meet in Shanghai on Tuesday for two days in the next round of negotiations aimed at de-escalating a tariff war between the two countries. “In reality the talks have hit a stalemate, we’ve not seen any results all along and that keeps on pushing yuan volatility down,” said a trader at an Asian bank in Shanghai, adding that the market has been largely unaffected by external economic data. “I think everyone is looking ahead to outcomes on trade, but they don’t expect significant progress before the month end,” he said. Ahead of the market’s open, the People’s Bank of China set the midpoint rate at 6.8796 per dollar, weaker than the previous fix of 6.8737. On the spot market, the yuan opened at 6.8740 per dollar and was changing hands at 6.8785 at midday, 51 pips weaker than Thursday’s late session close. The global dollar index fell to 97.784 on Friday from the previous close of 97.818. While recent sessions have seen yuan stay flat against the dollar, the Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, has steadily strengthened. Around midday on Friday, it stood at 94.03, firmer than the previous day’s 93.98 and bringing its gains for the week to 0.62%. The offshore yuan was trading level with its onshore spot counterpart at 6.8787 per dollar. Market indicators continue to point toward expectations that the yuan will ease against the dollar. On Friday, 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 6.9127, 0.48% weaker than Friday’s midpoint. One-year NDFs are settled against the midpoint, not the spot rate. The yuan market at 4:25AM GMT: ONSHORE SPOT: Item Current Previous Change PBOC midpoint 6.8796 6.8737 -0.09% Spot yuan 6.8785 6.8734 -0.07% Divergence from -0.02% midpoint* Spot change YTD -0.08% Spot change since 2005 20.32% revaluation Key indexes: Item Current Previous Change Thomson 94.03 93.98 0.1 Reuters/HKEX CNH index Dollar index 97.784 97.818 0.0 *Divergence of the dollar/yuan exchange rate. Negative number indicates that spot yuan is trading stronger than the midpoint. The People’s Bank of China (PBOC) allows the exchange rate to rise or fall 2 percent from official midpoint rate it sets each morning. OFFSHORE CNH MARKET Instrument Current Difference from onshore Offshore spot yuan 6.8787 0.00% * Offshore 6.9127 -0.48% non-deliverable forwards ** *Premium for offshore spot over onshore **Figure reflects difference from PBOC’s official midpoint, since non-deliverable forwards are settled against the midpoint. . (Reporting by Andrew Galbraith; Editing by Simon Cameron-Moore)

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