Yuan set to fall slightly this week, underperforms midpoint
The yuan slipped for a second day in a row and has mostly underperformed the official midpoint fixing during the week.
Updated:
SHANGHAI: China's yuan fell against the dollar on Friday, with traders saying there was little evidence of strong dollar supply even after Beijing posted a second month of trade surpluses in June.
The yuan slipped for a second day in a row and has mostly underperformed the official midpoint fixing during the week.
Spot yuan eased to 6.2078 per dollar by midday, 0.08 per cent weaker than Thursday's close.
In comparison, the People's Bank of China (PBOC) fixed its official midpoint at 6.1469, down 0.04 per cent from Thursday's fixing.
China's trade performance improved in May and June, leaving a trade surplus of $31.6 billion in June alone.
However, the PBOC's foreign exchange assets, which mainly reflect its dollar purchases and sales on the yuan market, rose a mere 361 million yuan ($58.21 million) in May, the lowest growth since July last year, central bank data published this week showed.
"The big difference between the PBOC's foreign exchange asset data and the trade surplus data means banks and their clients are holding a large amount of dollars on hand, resulting in much less dollar supply of late," said a trader from a Chinese commercial bank in Shanghai.
The PBOC's forex asset data is among a slew of others that shows that there is now a rough balance of dollar supply and demand in the domestic market, enabling the central bank to sharply reduce the frequency of its intervention in trading to influence the pricing of the yuan's value, traders said.
Echoing the PBOC's deeds with words, central bank Governor Zhou Xiaochuan pledged on Thursday that China would "significantly" reduce its yuan intervention when some prerequisites are met.
The PBOC this week fixed its midpoint generally stronger during the annual U.S.-China strategic and economic talks which ended on Thursday. But the yuan will still be down 0.06 per cent for the week, if it closes at the midday level, traders said.
Traders said that the current balance of dollar supply and demand in the domestic market offers no favourable conditions for yuan appreciation for now.
As such, the exchange rate is likely to fluctuate around 6.20 within a narrow range in the near term, they said.
The yuan slipped for a second day in a row and has mostly underperformed the official midpoint fixing during the week.
Spot yuan eased to 6.2078 per dollar by midday, 0.08 per cent weaker than Thursday's close.
In comparison, the People's Bank of China (PBOC) fixed its official midpoint at 6.1469, down 0.04 per cent from Thursday's fixing.
China's trade performance improved in May and June, leaving a trade surplus of $31.6 billion in June alone.
However, the PBOC's foreign exchange assets, which mainly reflect its dollar purchases and sales on the yuan market, rose a mere 361 million yuan ($58.21 million) in May, the lowest growth since July last year, central bank data published this week showed.
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"The big difference between the PBOC's foreign exchange asset data and the trade surplus data means banks and their clients are holding a large amount of dollars on hand, resulting in much less dollar supply of late," said a trader from a Chinese commercial bank in Shanghai.
The PBOC's forex asset data is among a slew of others that shows that there is now a rough balance of dollar supply and demand in the domestic market, enabling the central bank to sharply reduce the frequency of its intervention in trading to influence the pricing of the yuan's value, traders said.
Echoing the PBOC's deeds with words, central bank Governor Zhou Xiaochuan pledged on Thursday that China would "significantly" reduce its yuan intervention when some prerequisites are met.
The PBOC this week fixed its midpoint generally stronger during the annual U.S.-China strategic and economic talks which ended on Thursday. But the yuan will still be down 0.06 per cent for the week, if it closes at the midday level, traders said.
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Traders said that the current balance of dollar supply and demand in the domestic market offers no favourable conditions for yuan appreciation for now.
As such, the exchange rate is likely to fluctuate around 6.20 within a narrow range in the near term, they said.
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