China yuan steady in spot, rises in NDFs on data

SHANGHAI: The yuan was little changed against the dollar in the spot market on Wednesday and rose in the offshore forwards market, as a much bigger-than-expected Chinese trade surplus offset lower-than-expected inflation. China posted a record trade surplus of about $28.7 billion in August, according to calculations based on partial figures from the customs administration. That was well above economists' expectations for a $23.5 billion surplus; exports grew 21.1 percent from a year earlier. The trade data balanced news that consumer price inflation fell to a 14-month low of 4.9 percent in August from 6.3 percent in July, coming in below market forecasts of around 5.3 percent. While the market is split on whether inflation will continue falling in coming months, the August number suggested China now has less of a need to strengthen the yuan to fight inflation. But with the trade surplus still so large, and the central bank having declared its intention to prevent large-scale capital outflows as Chinese asset markets sag, the central bank remains unlikely to permit any major yuan depreciation, traders said. Theoretically, falling CPI inflation is supposed to weaken the yuan as the government now has no need to use currency appreciation to fight inflation, as it did earlier this year, said a trader with a major Hong Kong bank. But the yuan actually climbed slightly soon after the release of the CPI figure, since the market believes the central bank does not want to see currency depreciation in coming months. The central bank set the yuan's daily mid-point against the dollar at 6.8406 on Wednesday, marginally weaker than 6.8399 on Tuesday. But the yuan was trading at 6.8392 shortly after midday, having bounced from an intra-day low of 6.8422. It closed at 6.8381 on Tuesday. NDFS In the offshore non-deliverable forwards market, the yuan rose after the trade data suggested that despite a slowing economy, China might have room to keep the yuan firm against the dollar over the long term. One-year offshore dollar/yuan NDFs fell sharply to 6.7257 by midday from 6.7575 at Tuesday's finish. Their latest level implied yuan appreciation of 1.71 percent against the dollar in the next 12 months from the day's spot mid-point, up from 1.22 percent at the close on Tuesday. By appearing to reduce the risk of the yuan entering any depreciation trend, the trade data also pushed down dollar/yuan volatilities. One-year vols fell to 7.50 percent bid, returning to their levels in the second half of last month, from Tuesday's close of 7.90 percent.

China yuan steady in spot, rises in NDFs on data

The yuan was little changed against the dollar in the spot market on Wednesday.

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