China yuan edges up vs dollar in spot, NDFs

SHANGHAI, July 14 - China's yuan rose against the dollar in the spot and offshore non-deliverable forwards markets on Monday, but the gain was moderate because of uncertainty over the strength of a dollar rebound in foreign markets.

Before trade began, the Chinese central bank set the daily yuan mid-point <CNY=SAEC> against the dollar at 6.8266, a third straight post-revaluation high and up from Friday's 6.8397.

But with the dollar rebounding against major overseas currencies such as the euro <EUR=> after news of U.S. government support for embattled mortgage lenders Fannie Mae <FNM.N> and Freddie Mac <FRE.N>, the spot market pushed the yuan up only moderately, leaving it well short of the mid-point at midday.

The Chinese currency was trading at 6.8310 at midday, off a new post-revaluation high of 6.8253 hit in early trade, though still up from Friday's close of 6.8340.

One-year dollar/yuan non-deliverable forwards <CNY1YNDFOR=> fell only slightly, to 6.4520 from 6.4610.

The news on Fannie Mae and Freddie Mac has boosted the 10-year U.S. Treasury yield <US10YT=> by 20 basis points in the past couple of days, enough to end its downtrend from mid-June on technical charts.

The yield rose largely because of supply/demand issues -- a flood of money back into U.S. agency debt, and speculation that a rescue of Fannie and Freddie could be funded by more U.S. Treasury issuance -- and not because of any change in the outlook for U.S. monetary policy. The seizure by U.S. regulators of mortgage lender IndyMac Bancorp underlined the continued shakiness of U.S. markets.

However, uncertainty over whether the U.S. mortgage lender crisis could be on the way towards resolution, which might permit an extended global rebound of the dollar, restrained aggressive buying of yuan.

"The yuan could go as high as the 6.80 level in coming weeks -- but only if the dollar's overseas rebound today is not sustainable," said a Shenzhen-based trader at a Chinese bank.

COMMENTARY

A commentary published on the front page of the official China Securities Journal on Monday was mildly positive for the yuan.

The commentary, signed by a staff reporter of the newspaper, said the pace of yuan appreciation might slow in the second half of this year because of slowing export growth, but the yuan would not begin facing any significant risk of depreciation before mid-2009.

Chinese markets have been speculating since last week that the government may slightly ease its economic tightening campaign, given risks to growth and a pull-back of inflation.

So some traders think the China Securities Journal commentary may be a signal from the central bank that regardless of any policy easing, there is no risk of a complete halt in yuan appreciation any time soon.

"Even though there has been increasing caution about fast yuan appreciation, which has hurt China's exports, the central bank will stick to its internal targets for yuan appreciation," said the trader in Shenzhen.

• Email Story
• IM Story
• Printable View
• Blog This

Recommend this article

Related Articles: China's Economy

• No Olympic hangover for Chinese economy: expertsAFP - 2 hours 12 minutes ago
• President of major Chinese stock brokerage goes on trial in insider trading caseAP - Sunday, July 20
• WRAPUP 1-China power output growth at 6-yr low, woes deepenReuters - Saturday, July 19
• China to step up checks on FDI-related inflowsReuters - Saturday, July 19

Related Articles: Business

• India cbank buying more bonds with FX reservesReuters - 40 minutes ago
• China warns ExxonMobil to drop Vietnam deal: reportAFP - 1 hour 14 minutes ago
• No Olympic hangover for Chinese economy: expertsAFP - 2 hours 12 minutes ago
• NASA eyes buying Japan's cargo spacecraft - paperReuters - 2 hours 28 minutes ago
• Brazil, Colombia boost trade tiesAP - 2 hours 30 minutes ago