China's yuan firms as monetary easing expected, little impact from Evergrande



SHANGHAI, Dec 6 (Reuters) - China's yuan firmed on Monday, as Chinese exporters sold dollars with the approach of the year end, and investors expected the economy to strengthen took heart from expectations for monetary loosening that should boost the economy.

Investors also interpreted regulators were marginally relaxing funding channels for developers as a sign that the fallout from a likely default by China Evergrande Group would be limited.

The yuan CNY=CFXS opened at 6.3720 per dollar and was changing hands at 6.3688 at midday, 72 pips stronger than the previous late session close. Prior to market open, the People's Bank of China set a strong midpoint rate, at 6.3702 per dollar.

China will cut banks' reserve requirement ratios (RRR) "in a timely way", state media on Friday quoted Premier Li Keqiang as saying.

Although expectations of looser monetary policies pushed down yields of 10-year Chinese treasury bonds on Monday, their spread over U.S. counterparts, at roughly 1.4 percentage points, remained attractive to yield-hungry global investors.

Rocky Fan, economist at Sealand Securities, said he expects China to cut the RRR in the next one or two weeks, and more policy easing, including rate cuts, is needed.

A trader at a Chinese bank said that previous experience shows that RRR cuts typically support the yuan as the economic outlook improves as a result.

In addition "yuan is bolstered in the short term by robust money flows as many exporters tend to sell dollars toward year-end settlement."

Traders also brushed aside negative impacts on the yuan from Evergrande's financial woes. The heavily-indebted developer said on Friday there was no guarantee it would have enough funds to meet debt repayments, prompting Chinese authorities to summon its chairman.

Meanwhile, more real estate firms disclosed plans to issue bonds in the domestic market, as regulators said developers' normal funding needs would be met.

"We think the credit event will have limited impact on domestic and offshore bonds," China International Capital Corp (CICC) wrote.

"Impacts from this individual case are controllable."

The yuan market at 4:37AM GMT:

ONSHORE SPOT: Item

Current Previous Change PBOC midpoint

6.3702 6.3738

0.06% CNY=SAEC

Spot yuan

6.3688 6.376

0.11% CNY=CFXS

Divergence from

-0.02%

midpoint*

Spot change YTD

2.50% Spot change since 2005

29.95% revaluation

Key indexes:

Item

Current

Previous Change

Thomson

102.32

102.28

0.0 Reuters/HKEX

CNH index

Dollar index

96.262

96.197

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% from official midpoint rate it sets each morning.

OFFSHORE CNH MARKET Instrument

Current Difference

from onshore Offshore spot yuan

6.3695

-0.01% CNH= *

Offshore

6.5429

-2.64% non-deliverable

forwards

CNY1YNDFOR= **

*Premium for offshore spot over onshore CNY=CFXS **Figure reflects difference from PBOC's official midpoint, since non-deliverable forwards are settled against the midpoint. CNY=SAEC .


Reporting by SHANGHAI NEWSROOM; Editing by Simon Cameron-Moore

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