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Yuan slips vs dlr, NDFs again imply depreciation

Reuters - Thursday, September 25

By Fang Yan

SHANGHAI, Sept 25 - The yuan slipped against the dollar on Thursday after the Chinese central bank set a weaker reference rate. Offshore, non-deliverable forwards resumed implying yuan depreciation over the next 12 months.

Before trade began, the central bank set its daily yuan mid-point against the dollar <CNY=SAEC> at 6.8197, down from Wednesday's 6.8129.

"The weaker mid-points in the past two days show the central bank has no intention of guiding the yuan much higher," said a trader with a major Chinese bank.

"This week's new post-revaluation high (of 6.8099, hit on Monday) gave the impression that the yuan might be back in an uptrend against the dollar, but the central bank is now telling the market that is not true."

The yuan now appears unlikely to breach the psychologically important 6.8000 level anytime soon, several traders said.

Spot yuan <CNY=CFXS> traded at 6.8250 to the dollar at midday, down slightly from Wednesday's close of 6.8237.

Offshore, one-year dollar/yuan non-deliverable forwards <CNY1YNDFOR=> rose to 6.8250 by midday from Wednesday's close of 6.7850.

Their latest level implied yuan depreciation of 0.08 percent against the dollar over the next 12 months from the day's mid-point, compared with appreciation of 0.41 percent implied at the close on Wednesday.

Last week, NDFs implied 12-month yuan depreciation for the first time in five years, with implied depreciation rising as high as 2.34 percent. But many traders considered that excessive, given China's large trade surplus and still-growing economy.

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