The yuan fell against the world's reserve currency as the inflow of funding to the Asian nation was stumped by Chinese regulators. The Thursday losses mark a rare loss for the renminbi these days as the currency of the world's second-largest economy has been performing strongly against the monetary unit of the globe's largest economy as of late.
Traders and analysts said the yuan is likely to continue its upward drive because of the nation's strong economic base as of late, such as a healthy trade surplus. They project the renminbi to achieve gains as high as 3 percent in 2014.
The yuan slipped roughly 0.05 percent as compared to its close on Wednesday against the U.S. dollar. The People's Bank of China established a fixing midpoint at 6.115, which represents a reduction of 0.02 as compared to the official midpoint from the day prior.
"There were strong dollar purchases in the morning from both Chinese and foreign banks, while dollar selling activity declined significantly," a trader at a Chinese bank in Shanghai told the news source on Thursday.
Regulators in China are set to tighten the use of international monetary units by regional banks and companies by making sure the trade deals are genuine. The officials also intend to watch for unusual cash flows across borders, according to state media.
Chinese reserves of foreign exchange recently notched their top level in nearly six years in the aftermath of the appreciating yuan and policy reforms, which raised concerns about the increased rate of inflows.
Some traders expressed concern about long held yuan positions, which are designed to take profits and close positions as the year nears a close. That might prompt yuan weakness.
Lending climbed in November
The Wall Street Journal reports banks in China boosted lending last month, which indicates the nation's interests are gravitating toward economic progress. That movement is stronger than preoccupations about increased amounts of liquidity in the market.
The PBOC released the data on Wednesday and its short-term benefit could be relaxing concerns about the government tightening its hold on credit. In turn, that might signal increased borrowing expenses for financial institutions and their clientele.
Banks in the Asian nation issued 624.6 billion yuan, which equals about $103 billion in U.S. funds. That represents a sizable increase from the month prior, when the body lent more than 506 billion yuan.
New entrusted loans pushed to 270.4 billion yuan last month after having checked in at 183.4 billion yuan during the month prior.
Economist Lu Ting with Bank of America Merrill Lynch said the data released by the central bank shows confidence for a brighter outlook.
This economic data demonstrates ""the central bank didn't tighten the monetary policy as many had thought and the demand for credit was quite strong after the economy showed signs of rebounding in the third quarter," the economist told The Wall Street Journal.
Developing trade surplus
Bloomberg reports the nation's trade surplus also showed signs of growth.
The PBOC released data noting the trade surplus grew to its largest level since January 2009 when it registered at $33.8 billion.
The upward tick of that metric is linked with surging exports, Bloomberg reports.
"The trade surplus will put pressure on the yuan to appreciate for some time," chief Asia economist Mark Williams with Capital Economics Ltd. in London told Bloomberg earlier this week, noting the central bank might be poised to increase the currency of the renminbi.
This material is conveyed as a solicitation for entering into a derivatives transaction.
This material has been prepared by a Daniels Trading broker who provides research market commentary and trade recommendations as part of his or her solicitation for accounts and solicitation for trades; however, Daniels Trading does not maintain a research department as defined in CFTC Rule 1.71. Daniels Trading, its principals, brokers and employees may trade in derivatives for their own accounts or for the accounts of others. Due to various factors (such as risk tolerance, margin requirements, trading objectives, short term vs. long term strategies, technical vs. fundamental market analysis, and other factors) such trading may result in the initiation or liquidation of positions that are different from or contrary to the opinions and recommendations contained therein.
Past performance is not necessarily indicative of future performance. The risk of loss in trading futures contracts or commodity options can be substantial, and therefore investors should understand the risks involved in taking leveraged positions and must assume responsibility for the risks associated with such investments and for their results.
Trade recommendations and profit/loss calculations may not include commissions and fees. Please consult your broker for details based on your trading arrangement and commission setup.
You should carefully consider whether such trading is suitable for you in light of your circumstances and financial resources. You should read the "risk disclosure" webpage accessed at www.DanielsTrading.com at the bottom of the homepage. Daniels Trading is not affiliated with nor does it endorse any third-party trading system, newsletter or other similar service. Daniels Trading does not guarantee or verify any performance claims made by such systems or service.