* C.bank fixes yuan at 6.3052, first softening since Oct 10
* Spot yuan continues to flirt with 6.25 resistance level
* Strategists: strengthening from capital inflows, PBOC
encouragement
By Pete Sweeney
SHANGHAI, Oct 19 (Reuters) – The central bank set a weaker
yuan midpoint on Friday morning, a possible signal that Beijing
wants to restrain further yuan appreciation after the currency
hit multiple record highs against the dollar in the past two
weeks.
Spot prices opened up at 6.2482 per dollar,
stronger than what traders say is the current resistance point,
namely 6.25 per dollar. But it quickly backed away from that
price, softening to 6.2521 at midday, slightly weaker than
Thursday’s close.
Traders and analysts are divided on the primary drivers for
the market’s apparent optimism – or whether the market is in
fact as optimistic as it appears. Some have argued that the
central bank has been quietly pushing up the spot market from
behind the scenes, as U.S. presidential candidates debate
whether China is a currency manipulator or not.
In terms of market factors, observers said corporates began
steadily unloading dollars in October. The announcement of a
third round of monetary easing in the U.S. is expected to put
depreciation pressure on the dollar’s traded value, and some
analysts say the global appetite for riskier currencies such as
the yuan has increased as investors detect signs of nascent
recovery.
The primary market-based restraint on appreciation, they
said, has been provided mostly by Chinese energy and commodities
companies, which have occasionally moved to pick up dollars.
Whether 6.25 will hold in the short term is an open
question, but economists say Beijing does not want the yuan to
strengthen overmuch. While exports have improved, other economic
indicators show signs of enduring weakness.
“We are happy to see that the September trade data has shown
some positive changes. But with only a single month’s figure, it
is still not enough to judge a trend of recovery due to the
complicated external economic environment,” said commerce
ministry spokesman Shen Danyang at a news conference on Friday.
Earlier in the year, the yuan posted a long slide against
the dollar as the dollar index rocketed upwards while
investors offloaded euro assets. But as the euro recovered
against the dollar, the yuan followed suit.
However, data from the Bank for International Settlements
showed that the yuan actually declined in overall trade-weighted
terms month-on-month in July, August and September. This implies
that China may have actually gained overall trade
competitiveness even as the yuan posted paper gains against the
dollar.
A research note from Barclays distributed on Friday said
that this situation began to change in mid-September.
“The CNY nominal effective exchange rate (NEER) has
appreciated over 1 percent since mid-September and spot USD/CNY
has hugged the strong end of the +/-1 percent band,” authors
Nick Verdi, Olivier Desbarres and Hamish Pepper wrote.
“We think these moves reflect a persistently high trade
surplus, hot money inflows encouraged by diminishing tail risks
to global growth, and the PBoC’s acceptance of these flows by
fixing USD/CNY at a four-month low,” they wrote.
(Editing by Richard Borsuk)
