China's yuan on Friday recouped all of its losses from earlier in the week after Reuters reported the central bank has told major state-owned banks to be ready to support the currency in offshore trading. Sources told Reuters on Thursday that state banks were told to review their holdings of the offshore yuan and ensure U.S. dollar reserves are ready to be deployed to stem the fast yuan depreciation.nL1N3100Q5 Both the onshore yuan and offshore yuan made sharp turnarounds after the report and extended their rebound on Friday.
"Many market participants had to cover their yuan shorts," said a trader at a foreign bank, adding some investors also squared their books to avoid higher volatility during the upcoming holiday. China's financial markets will be closed for the week-long National Day holiday from Saturday. Trading will resume on Oct. 10. The onshore yuan opened at 7.1000 per dollar and was changing hands at 7.1140 at midday, 70 pips firmer than the previous late session close. If the spot yuan finishes the late night session at the midday level, it would have gained 0.22% to the dollar for the week, booking the first weekly gain since mid-Agusut.
But it is still heading for a monthly loss of more than 3% to bring its year-to-date drop to more than 10%, leaving the yuan on course for the worst year since 1994. "During recent policy communications and actions, PBOC has sent clear signals on its discomfort with the sharp RMB depreciation, and willingness to stabilize RMB exchange rates," analysts at Goldman Sachs said in a note. Separately, signs of boosts for the country's ailing property market also helped improve market sentiment, traders said. Local governments may relax the floor on mortgage rates for first-time home buyers in some cities, the central bank said on Thursday, in a bid to prop up property prices and revive a flagging engine of the world's second-largest economy. Prior to the market opening, the People's Bank of China set the midpoint rate at 7.0998 per dollar, 104 pips or 0.15% firmer than the previous fix of 7.1102.
The yuan market at 0418 GMT: ONSHORE SPOT: Item Current Previous Change PBOC midpoint 7.0998 7.1102 0.15% Spot yuan 7.114 7.121 0.10% Divergence from 0.20% midpoint* Spot change YTD -10.67% Spot change since 2005 16.34% revaluation Key indexes: Item Current Previous Change Thomson 0.0 Reuters/HKEX CNH index Dollar index 112.198 112.254 -0.1 *Divergence of the dollar/yuan exchange rate. Negative number indicates that spot yuan is trading stronger than the midpoint.
The People's Bank of China (PBOC) allows the exchange rate to rise or fall 2 percent from official midpoint rate it sets each morning. OFFSHORE CNH MARKET Instrument Current Difference from onshore Offshore spot yuan 7.1092 0.07% * Offshore 7.0162 1.19% non-deliverable forwards ** *Premium for offshore spot over onshore **Figure reflects difference from PBOC's official midpoint, since non-deliverable forwards are settled against the midpoint. . (Reporting by Winni Zhou and Brenda Goh)