MNI SOURCES: PBOC Wary Of Further Yuan Appreciation

     BEIJING (MNI) - The People's Bank of China does not want a sharp

appreciation by the yuan, a source close to the PBOC told MNI, adding that the

current rally could be capped at about 6.7 to the dollar.

     Any further rapid appreciation by the currency, which has risen sharply at

the start of this year's trading, could impact China's exports, the source said,

without saying whether the PBOC would intervene to slow any move in the yuan.

     Separately, a government advisor told MNI he saw little further upside for

the Chinese currency.

     Weak Chinese economic fundamentals will prevent a longer-term bullish move,

even if optimism following this week's initial round of U.S.-China talks aimed

at settling their trade dispute is fuelling the exchange rate for the moment,

Zhang Ming, a senior fellow at the Institute of World Economic and Politics

under the Chinese Academy of Social Sciences, said.

     The yuan will still likely face depreciation pressure this year, as the

yield spread between Chinese government bonds and U.S treasuries narrows, Zhang

said, although both he and the source close to the PBOC said that it was

unlikely the key 7 to the dollar level would be breached if trade talks are

successful.

     The yuan leapt to a 5-month high 6.7433 against the dollar on Friday,

rallying after it breached 6.8 on Thursday. The currency has jumped over 1,200

basis points against the dollar since Jan, 2, the first trading day of 2019,

after it dropped 6.3% in 2018 and touched as low as 6.9628.

     Some market players think the PBOC has moved to boost the yuan during a

moment of dollar weakness, a Hong Kong trader said. Its sharp appreciation after

the trade talks may have been meant as a gesture to the U.S. ahead of later

rounds of negotiations, the trader said.

     Zhao Qingming, chief economist at Chain Financial Future Exchange, told MNI

broad dollar weakness has benefited the yuan, predicting that CNYUSD could rally

to below 6.5, even to 6.3, failing a recovery by the greenback.

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

[TOPICS: M$A$$$,M$Q$$$,MT$$$$,MX$$$$]