China's yuan marks time ahead of Fed meeting
HONG KONG, Sept 18 (Reuters) - China's yuan held near three-week lows against the dollar on Wednesday as investors waited for the U.S. Federal Reserve to launch an expected modest scaling back of stimulus later in the day. Expectations are that the Federal Open Market Committee (FOMC) will be measured with any cuts to its $85 billion in monthly asset buying, while also seeking to reassure investors that the day of actual policy tightening is still distant.
Around midday, the Chinese yuan was changing hands at 6.1216 per dollar, a level it last tested in late August. It is set for its biggest weekly decline in a month. Onshore markets are closed on Thursday and Friday. But some traders expect that any Fed policy outcome will trigger a weakening bias in the renminbi, which has been the sole gainer in the Asian currency space so far this year helped But with the Chinese currency trading at record highs against a trade-weighted basket of currencies, any further sharp gains may be hard won. Chart: http://link.reuters.com/ryx62v
"The most likely scenario is for dollar/yuan to stay flat," Deutsche Bank strategists said in a note. "In the medium term for CNY to resume appreciation, the external sector needs to recover more decisively." But that hasn't stopped some traders from punting on more currency gains in the offshore yuan market in Hong Kong where the gap between the "CNH" as it is known and onshore spot has widened considerably this week. Fueling the appreciation bets is the likely month-end details of the unveiling of Shanghai's free trade zone by authorities. The move has been widely touted as a testbed for full yuan convertibility. Changes in the way the central bank is managing the yuan's exchange rate in recent days has also sparked speculation that a new wave of reforms is on the anvil.
The onshore spot yuan market at a glance:
Item Current Previous Change PBOC midpoint 6.1557 6.1571 0.02% Spot yuan 6.1214 6.1215 0.00%
Divergence from midpoint* -0.56%
Spot change ytd 1.78% Spot change since 2005 revaluation 35.21% *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 1 percent from official midpoint rate it sets each morning.
OFFSHORE CNH MARKET
The offshore yuan market at a glance:
Instrument Current Difference from onshore Offshore spot yuan 6.1113 0.17% Offshore non-deliverable 6.2058 -0.81%
*Premium for offshore spot over onshore
**Figure reflects difference from PBOC's official midpoint, since non-deliverable forwards are settled against the midpoint. .
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> RECENT DEVELOPMENTS - Yuan rally starts to fade as capital inflows to China slow
- ANALYSIS-Bullish yuan herd leaves China fundamentals in the dust - Currency war or no, Beijing doesn't want Asia to take stable yuan for granted - China opens new front in money war as yuan speculation distorts export data
KEY DATA POINTS - Gap between PBOC midpoint and spot rate is narrowing. GRAPHIC: http://link.reuters.com/qyx74t - China's trade surpluses mainly driven by weak imports rather than strong exports. GRAPHIC: http://link.reuters.com/qav68s - Corporate FX purchases in May show reduction in yuan appreciation expectations. GRAPHIC: http://link.reuters.com/tyx74t - Hot money inflows turn to outflows in May GRAPHIC: http://link.reuters.com/saz74t - Despite relatively stable dollar/yuan exchange rate, the yuan is appreciating on a trade-weighted basis. GRAPHIC: http://link.reuters.com/sed74t
(Editing by Kim Coghill)