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Yuan Falls on Global U.S. Dollar Rise After Jobs Data

The yuan was lower against the U.S. dollar at midday on Monday, under pressure from the U.S. currency's strength on global markets after robust U.S. jobs data reinforced the view the Federal Reserve would not cut interest rates in the near term.

The yuan was trading at 7.7280 against the dollar in the Asian session, weakening from Friday's close of 7.7213.

The central bank set the yuan's mid-point at 7.7290 before the start of trading, down from Friday's post-revaluation high mid-point of 7.7251.

Dealers said the mid-point reflected strength in the dollar, which rose to a six-week high against the Japanese yen after Friday's jobs data. "A stronger dollar sparked a yuan correction after the yuan hit a post-revaluation high," said a dealer at a U.S. bank.

The yuan hit 7.7212 in late trade on Friday, buoyed by the central bank's announcement of a 0.5 percentage point rise in banks' reserve requirements. It was the highest level since Beijing revalued it and depegged it from the dollar in July 2005.

The monetary tightening, which will take effect on April 16, would temporarily reduce yuan supplies in China's foreign exchange market, although its long-term impact would be limited, dealers said.

Despite Monday's retreat, dealers said the yuan was likely to start rising again soon and was poised to break through the psychologically important 7.7200 mark this week.

Some dealers said the latest reserve requirement rise was unusual in that the announcement preceded the publication of monthly economic data, which always occurs in the middle of the month.

"That could mean that China's March macroeconomic data is still pointing to the possibility of an overheated economy, including a large trade surplus," said a dealer at a major Chinese state bank.

However, Vice Commerce Minister Gao Hucheng told reporters on Monday there would be a "notable change" in the country's trade data for March, implying some slowdown after an unexpected surge in the surplus in the first two months of the year.

Trading of the yuan against foreign currencies began on Monday on a new system launched by China Foreign Exchange Trade System (CFETS) and Reuters Group.

The new system marked the first time the yuan was being traded against foreign currencies with Reuters Electronic Trading technology, CFETS and Reuters said.

The system allows CFETS to operate two trading models: an anonymous model, in which CFETS acts as a central clearing settlement counterparty for trades, and another in which member banks need to establish credit relationships with each other.

One Shanghai dealer said that, as with other technical upgrades, there was no indication the new system was linked to a change in China's currency policy.

One-year non-deliverable forwards quoted the yuan at 7.2619/2669 in the Asian session Monday, indicating an appreciation of 6.36 to 6.43% from Monday's yuan mid-point in a year's time.

The figure was up from 6.01 to 6.08% on Friday and 5.19 to 5.27% at the end of last year.