SINGAPORE (Reuters) -The yuan headed for its sharpest gain in two weeks on Monday, thanks to a wave of broad dollar selling as investors bet on U.S. interest rate cuts, but slipped against a resurgent yen.
The Chinese currency rose to 7.1314 per dollar in afternoon trading and was last about 0.4% firmer at 7.1363, its biggest single-day gain since early August.
The rally puts the yuan back in the middle of its daily trading band – after months at the low end – although that is mainly due to a weakening dollar rather than improving sentiment.
The yen’s rise continued to pressure the yuan against a basket of trading partner currencies, where it reached 98.07, its lowest level since Jan. 15, according to Reuters calculations based on official data. The yuan fell 1% to 20.38 yen, the steepest decline since August 5.
Traders are looking ahead to Tuesday’s Chinese prime rate settings against a backdrop of collapsing bank loans, falls in housing prices and economic gloom that analysts believe will keep the currency from rising much further.
“The weak outlook for the Chinese economy and expectations for further monetary policy easing will undermine investor confidence in Chinese assets and in turn reduce demand for the yuan,” said Commonwealth Bank of Australia (OTC) analysts :).
The yuan is unlikely to benefit much from a decline in the US dollar due to an improving global economy, she added.
Globally, Fed Chairman Jerome Powell is expected to call for interest rate cuts in a speech on Friday.
Yields on Chinese government bonds fell by 1.8 basis points to 2.17%. The yield on comparable US government bonds was 3.9%.
The onshore 7-day repo rate on the yuan stood at 1.74% and on the forward market, the three-month yuan was trading at 7.0695, 722 pips higher than the spot rate. Three-month CNH forwards were quoted at 7.0682 per dollar.
The People’s Bank of China set the mid-rate, around which the yuan can trade within a 2% range, at 7.1415 per dollar on Monday, 133 pips higher than the Reuters estimate. Key onshore vs. offshore levels: yuan swap onshore -7.25 pips vs. offshore-7.25 * Three-month SHIBOR 1.8% vs. 3-month CNH HIBOR 2.2%
LEVELS AT 07:00 GMT
INSTRUMENT CURRENT UP/DOWN(-) % CHANGE DAY HIGH DAY
vs USD US LAST YEAR TO DATE LOW
NEAR %
Spot Yuan 7.1417 0.33 -0.56 7.1314 7.1585
CNY=CFXS
Offshore 7.1411 0.3 -0.22 7.1278 7.1641
yuan spot
