SHANGHAI, Sept 17: China’s currency was little changed on Monday morning, as the market has largely digested the impact of the U.S. Federal Reserve’s new stimulus programme, which has reinforced a pre-existing trend of increased yuan demand from Chinese corporates.
‘The effect (of the Fed’s action) is about 80 percent complete. Going forward, there may a period of technical adjustment, but the fundamental dollar weakening trend won’t go much further,’ said a foreign exchange dealer at a foreign bank in Shanghai.
Spot yuan traded in a narrow range, briefly touching a fresh four-month high of 6.3122 per dollar before retreating to 6.3147 at midday, flat from Friday’s close.
Before trade began, the People’s Bank of China (PBOC) set its daily midpoint at 6.3295, a shade stronger than Friday’s fixing of 6.3317.
The fixing was in line with the PBOC’s usual practice of setting a stronger yuan fixing in response to a weaker dollar index overnight. The dollar hovered near a seven-month low versus a basket of currencies in Asian trade on Monday and was seen as likely to stay under pressure.
Though the yuan has strengthened further following the Fed’s move, dealers noted that the yuan had already been on a strengthening trend due in part to a resilient Chinese trade surplus.
The surplus has averaged $28 billion in the three months through August, compared with $14 billion in the prior three-month period.
‘Of course the onshore market feels the impact of international trends (like QE3), but the influence is relatively small. Economic fundamentals in China are still the main factor,’ said a dealer at a major state-owned bank in Beijing.
If the monthly trade surplus remains at the level of recent months, he predicts the yuan could appreciate further over the next months. Dealers have said they believe the yuan will meet resistance at around 6.30 per dollar. (AGENCIES)
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