Currency traders said the yuan's sharp rise in early deals on Thursday prompted some market participants to take profit on their long yuan positions. "Sharp gains in the yuan may come to an end, and future movements will be dependent on the pace of domestic economic recovery," said a trader at a Chinese bank. A second trader at a foreign bank said the yuan strength may be capped soon as their corporate clients, especially Chinese importers, would start to stock up on dollars. Still, the Fed's dovish tilt, along with Beijing's exit from its stringent zero-COVID strategy and conversion to pro-growth policies, has helped restore market sentiment.
The Chinese yuan has strengthened about 9% to the dollar since the trough it hit in November and is up about 2.8% so far this year, reversing much of the losses suffered in 2022, when the yuan booked its worst annual performance in 28 years. "China's current account surplus should drop back to pre-COVID levels," Andrew Tilton, chief Asia-Pacific economist at Goldman Sachs said in a note. "This should limit further appreciation in the yuan's trade weighted index, although we expect the CNY to appreciate further against the USD on both China growth acceleration and a weaker dollar." Goldman Sachs and other global investment banks have raised their forecasts for the Chinese yuan this year on expectations that the country's economic reopening and Beijing's decision to relax property sector curbs will trigger strong capital inflows. By midday, the global dollar index fell to 100.918 from the previous close of 101.217, while the offshore yuan was trading at 6.7188 per dollar.
The one-year forward value for the offshore yuan traded at 6.5811 per dollar, indicating a roughly 2.09% appreciation within 12 months. The yuan market at 0311 GMT:
ONSHORE SPOT:
Item Current Previous Change
PBOC midpoint 6.713 6.7492 0.54% Spot yuan 6.7148 6.7435 0.43% Divergence from 0.03%
midpoint*
Spot change YTD 2.76%
Spot change since 2005 23.26%
revaluation
Key indexes: Item Current Previous Change
Dollar index 100.918 101.217 -0.3
*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% from official midpoint rate it sets each
morning.
OFFSHORE CNH MARKET
Instrument Current Difference
from onshore
Offshore spot yuan 6.7188 -0.06%
*
Offshore 6.584 1.96%
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 Winni Zhou and Brenda Goh; Editing by Simon
Cameron-Moore)
