Yuan edges up as investors catch up with dollar weakness after holiday

SHANGHAI: China's yuan edged up on Tuesday, as investors returned from a long holiday weekend to play catch-up with broad dollar weakness in global markets.

The dollar sank to an almost two-week low against its major trading partners, moving in tandem with retreating Treasury yields from recent peaks despite signs of a robust US economic recovery.

The weaker dollar prompted the Chinese central bank to lift its official yuan guidance higher and prop up the spot rates. Prior to market opening, the People's Bank of China (PBOC) set the midpoint rate at a one-week high of 6.5527 per dollar, 122 pips or 0.19% firmer than the previous fix of 6.5649.

In the spot market, the onshore yuan trading unchanged fron the open at 6.5550 per dollar, 125 pips firmer than the previous late session close on Friday.

Its offshore counterpart also firmed, trading at 6.561 per dollar by midday.

"The USD/CNH does not seem to have traction south of 6.5500 at this point, while a more meaningful challenge on the 6.6000 mark may have to wait as the broad USD has turned somewhat soggy," strategists at OCBC Bank said in a note.

They expected the yuan to trade in a range 6.55 to 6.59 in the near term.

A trader at a Chinese bank said corporate clients' dollar conversion into yuan also lent some support for the Chinese currency in morning trade.

Official data showed that domestic tourism revenue during the April 3-5 Tomb Sweeping holiday had recovered to 56.7% of its pre-COVID levels.

Along with recent economic indicators including manufacturing data, China continued to recover from coronavirus disruption, analysts said, but some argued that the pace was surpassed by that in the United States due to rapid vaccine rollout and fiscal stimulus in the world's largest economy.

"Potential continued strength of USD, narrowing growth gap between the Chinese and United States economies, less capital inflows are factors that imply potential overall depreciation pressure on CNY against USD in the near-term," said Marco Sun, chief financial markets analyst at MUFG Bank, expecting the yuan to finish the second quarter of this year at 6.6 per dollar.