First forex forwards point to yuan strength
(Shenzhen Daily/Agencis)
Updated: 2005-08-17 10:17

China's foreign exchange market had kicked off forwards trading and the first two deals indicated market expectations of an appreciation of the yuan in the next year, the exchange and domestic media said Tuesday.

A pioneer one-month yuan forward done Monday was quoted at 8.0778 against the U.S. dollar and the other a one-year forward at 7.8140, the Shanghai Securities News said, indicating market expectations of a 3.5 percent revaluation of the yuan in a year.

An exchange official confirmed the deals but declined to give further details.

That was roughly in line with expectations on global markets, with the yuan’s offshore non-delivable forwards traded at 7.8230 in late afternoon Monday.

The Central Government, after it ended its decade-old dollar peg and allowed a 2.1 percent rise of the yuan July 21, said last week that banks would be allowed to trade yuan forwards and swaps with each other in the national interbank market, the China Foreign Exchange Trade System in Shanghai.

“Our market has formally added foreign exchange forwards as a new trading tool as of Monday and has upgraded our trading system,” the exchange said in a statement posted on its Web site, but gave no details of transactions.

Monday’s one-month forward contract was conducted by the Industrial and Commercial Bank of China, the country’s biggest lender, and the one-year deal by the China Construction Bank , the top property lender, the newspaper said.

The hedging products were launched as the yuan’s trading range has expanded since the July 21 revaluation, aggravating risks for financial institutions trading on the market, the China Securities Journal said.

Forwards allow a company or bank to lock in an exchange rate for a foreign currency payment at a specified future date. A currency swap is another tool for hedging against — or betting on — moves in exchange rates.

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