SHANGHAI: China’s yuan softened on Thursday, but remained little changed overall ahead of U.S.-China trade talks set for next week, keeping it on a relatively stable path against the dollar.
The yuan has traded in a narrow range of just 16 pips against the U.S. currency, between 6.8688 and 6.8848 per dollar, over the past 10 sessions, in contrast to the greenback.
The dollar’s index against a basket of major rivals was nearly unchanged at 97.724 on Thursday, near levels last seen in May, but the index has fluctuated more widely in the last 10 sessions.
Market analysts say that may reflect the desire of the People’s Bank of China (PBOC) to maintain currency stability against the backdrop of trade talks.
“The PBOC wants to keep the yuan as stable as possible, not (just) before the talks, but during the talks, until the trade war ends,” said Iris Pang, Great China economist at ING.
Trade talks have in the past produced currency volatility, with knock-on effects for the economy, she said.
“What the PBOC can do best for Chinese exporters and importers is to make the yuan very stable,” she said.
U.S. Treasury Secretary Steven Mnuchin and Trade Representative Robert Lighthizer will meet with Chinese Vice Premier Liu He for talks in Shanghai starting on July 30, the White House said in a statement on Wednesday.
Before the market open on Thursday, the PBOC set the midpoint of the yuan’s daily trading band at 6.8737 per dollar, firmer than the previous fix of 6.886.
The spot market opened at 6.8722 per dollar and was changing hands at 6.8755 at midday, 25 pips weaker than the previous late session close.
Ahead of the trade talks, overall trading volumes this week have plumbed depths last seen during the Lunar New Year holiday season in February. But on Thursday, midday spot volume was higher at around $12.3 billion, compared with $6.8 billion around midday on Wednesday.
The 30-day moving average of full-day yuan spot volume was$27.87 billion on Thursday.
In contrast to onshore yuan’s relative stability against the dollar, the Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, rose to stand at 93.92, firmer than the previous day’s 93.81. It has risen by 0.5% this week.
Pang said the slight recovery in trading volumes may reflect less uncertainty about the Sino-U.S. trade meetings next week, even if the talks themselves are likely to produce little progress.
“When people in general agree that nothing big will happen, they actually know that the yuan will be fairly stable,” Pang said.
The offshore yuan was last trading at 6.8774 per dollar.
Offshore one-year non-deliverable forwards contracts (NDFs), considered the best available proxy for forward-looking market expectations of the yuan’s value, traded at 6.9148.