Business Daily
Date: 05.01.2017
Page 21
Article size: 453 cm2
ColumnCM: 100.66
AVE: 191266.66
China now steps in to support yuan
again as Trump inauguration nears
? INTERVENTION
Move seen as bid to firm
grip on currency before
January 20 ceremony
China stepped into both its onshore
and offshore yuan markets to shore
up the faltering yuan for a second
day yerdayday, sparking speculation that
it wants a firm grip on the currency ahead
of US President­elect Donald Trump's in­
auguration.
The central bank set a stronger­than­
expected daily trading midpoint for the
yuan, state banks sold dollars and borrow­
ing rates for the offshore component of the
yuan rose, all hinting at state intervention
to stem losses in the currency.
The moves helped the yuan inch up
0.1 despite strength in the global dollar
index, while the offshore yuan hit a two­
week high.
Global investors'jitters over the yuan
are intensifying ahead of Trump's January
20 inauguration. He had threatened during
the election campaign to slap high import
tariffs on Chinese goods and label Beijing
a currency manipulator.
The supportive yuan midpoints and
surge in borrowing rates suggested the
People's Bank of China might have stepped
up its action to defend the yuan to keep it
from breaching the seven per dollar level,
Ken Cheung, Asian FX strategist at Mi­
zuho Bank in Hong Kong, said in a note
to clients.
"Trump's actual policy delivery and
his stance against China are critical to
the dollar and yuan direction in 2017,"
Cheung said.
"While China­US tensions have been
heating up in December, any provocation
from Trump's administration after he takes
office will easily escalate the risk of a trade
war and spark a heavy CNH sell­off."
The PBOC set the midpoint rate at
6.9526 per dollar prior to the market open,
weaker than the previous fix of 6.9498.
US President­elect Donald Trump, afp
In the spot market, the yuan opened at
6.9565 per dollar and was changing hands
at 6.9540 at 0800 GMT, stronger than the
previous close.
It fell 6.6 per cent against the dollar last
year, its biggest one­year loss since 1994,
and many market watchers expect it to
soften further this year, forcing Beijing to
burn through more of its foreign exchange
reserves if it wants to stabilise it.
"The central bank is in the market to
stop the yuan from falling too quickly," said
a trader at a Chinese bank in Shanghai.
"The yuan fixing was stronger than
expected today, and also state banks con­
tinue to offer dollars in the market," the
trader said.
Rate benchmark for overnight tenor, set
by the city's Treasury Markets Association,
was fixed at 16.95 per cent yesterday.
The rate was fixed at 17.76 per cent a day
earlier, the highest since September 19.
Analysts said the surge in borrowing
costs was a result of a shrinking yuan pool
in Hong Kong, a result of fewer people
seeking yuan­denominated assets owing
to expectations the currency will weaken
further.
"The depreciation expectation of the
yuan remains and it takes time for inves­
tors to rebuild their confidence in the Chi­
nese currency," said Liao Qun, China chief
economist at Citic Bank International.
"Meanwhile, China has been making
The offshore yuan was trading 5 percent
stronger than the onshore spot at 6.9231
per dollar.
Offshore money markets have been tight
all week, with the overnight yuan borrow­
ing rate climbing on Tuesday to its highest
expect the yuan to weaken. Offshore one­
year non­deliverable forwards contracts
(NDFs) traded at 7.285, or 4.56 per cent
weaker than the midpoint.
level in more than three months.
­REUTERS
efforts to control capital outflows."
Forward markets showed investors still
The CNH Hong Kong Interbank Offered
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