MNI SOURCES: PBOC Unfazed By Lower Yuan, Sees Exporter Boost

--Happy With Yuan Around 7.05 Vs USD, Break Lower Could Be Problematic

     BEIJING (MNI) - The People's Bank of China appears content with the yuan

trading around 7.05 to the U.S. dollar, a source familiar with the central

bank's forex operations told MNI, explaining that a lower currency will help

small- and medium-sized exporters recover from the Covid-19 shutdown.

     Although the central bank is unlikely to want the yuan to dip below 7.10,

it is unlikely to intervene directly in forex markets, a second source told MNI,

instead saying it would use daily fixings, window guidance and, if needed,

orders placed with the big five state-owned banks, by far the largest operators

in the onshore market, to smooth any unwanted price volatility.

     The PBOC has consistently set the yuan's onshore fixing at around 7.05 in

recent months, with the last-sub-7 fixing on March 12, indicating its preference

for the currency to be trading on a slightly weaker footing as it helps

manufacturing exporters.

     The yuan trading above 7, the source said, would be fairly normal in coming

months, barring a sharp dollar depreciation.

     --SNAP BACK

     Later in the year, the yuan could head back towards 6.80 as the pandemic

weakens the U.S. economy, another source said, noting that that any

strengthening beyond that level would have a significant impact on the profits

of larger state-owned exporters.

     Neither source ruled out the possibility of the pair trading in a wider

range of 6.60 to 7.30 given the extreme volatility in global markets, although

they saw the PBOC attempting to keep the currency stable in order to foster

confidence amongst exporters.

     The current trading level appears to be at the upper level of a trading

range seen as desirable by policy advisors to Beijing, with one telling MNI that

the pair should be trading in a range of 6.80 to 7.05 this year.

     The PBOC set the daily fixing at 7.0571 Thursday, lower than Wednesday's

7.0748 close.

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com

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