May 15, 2015 / 5:03 AM / 2 years ago

China's yuan weakens on corporate dollar demand, stability seen in short term

A clerk counts 100 Chinese yuan banknotes at a branch of China Merchants Bank in Hefei, Anhui province April 20, 2015.Stringer

SHANGHAI (Reuters) - China's yuan currency on Friday weakened against the dollar as corporate dollar demand outweighed supply, helping to offset a 15-month high midpoint set by the central bank, traders said.

For the week, the currency is likely to head to a weekly gain of around 0.08 percent, if it closes at the midday level.

The People's Bank of China (PBOC) set the midpoint rate at 6.1085 per dollar prior to the market's open, 0.01 percent firmer than the previous fix at 6.1093.

The spot market opened at 6.2028 per dollar and was changing hands at 6.2048 at midday, 0.05 percent weaker than the previous close.

PBOC has set a slew of marginally strong midpoints this week, which traders interpreted as a message from the monetary authorities to maintain the stability of the exchange rate for the moment, after the latest round of economic data showed no rebound of China's economy.

"Clients see no reason to be bearish on the currency after authorities have signaled stability," said a trader at a city commercial bank in Shanghai.

"But there is also no motive to push up the yuan, given the current weakness of the economy and the possibility of an interest rate hike by the United States in coming months."

The yuan will be likely to trade narrowly between 6.20 and 6.22 until some fresh market-moving factors emerge, traders said.

CORPORATE DOLLAR DEMAND

Despite Beijing's pledge to keep the yuan stable, traders said there was still concern over capital outflows triggered by China's economic slowdown, motivating banks' clients to keep more dollars on hand.

In March, Chinese banks posted a deficit of $57.9 billion in foreign exchange settlements for corporate clients, scoring the seventh month of deficit and marking the biggest monthly figure since 2010, data from the State Administration of Foreign Exchange (SAFE) shows.

The PBOC and commercial banks together sold 156.5 billion yuan worth of foreign exchange on a net basis in March, Reuters calculations based on central bank data show.

Both pieces of data contradict China's big trade surplus in recent months, indicating companies and individuals are more inclined to keep dollars on hand.

Reporting by the Shanghai Newsroom; Editing by Clarence Fernandez

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