Yuan off 6-week high, investors await global central bank policy signals

SHANGHAI: China's yuan eased on Friday from a six-week high reached a day earlier but still looked set for a winning week, as investors awaited monetary policy comments from global central banks.

US Federal Reserve Chairman Jerome Powell is expected to call for the continuation of easy monetary policy, when the central bank meets next week. That would put downward pressure on Treasury yields and cap the dollar's gains against most currencies.

On Thursday, European Central Bank President Christine Lagarde messaged that talk of tapering was premature.

Prior to market opening, the People's Bank of China (PBOC) set the midpoint rate weaker at 6.4934 per dollar, snapping eight straight days of strengthening.

In the spot market, onshore yuan opened at 6.4920 per dollar and was changing hands at 6.4970 at midday, 58 pips weaker than the previous late session close. It hit a high of 6.4820 on Thursday, the strongest since March 12.

But if the yuan finishes the late night session at the midday level, it would have booked its third straight weekly gain.

The Chinese currency swung in a very tight range just above the psychologically important 6.5 per dollar level on Friday morning, with investors awaiting clearer policy signals from major central banks.

Several traders said the yuan continued to track the dollar's movements, and sharp moves in the greenback from shifts in US policy could spark volatility in the Chinese currency.

A trader at a local bank said domestic factors could soon weigh on the yuan as Chinese companies listed abroad start to make FX purchases for their interim dividend payments. Such seasonal FX demand, which usually takes place between May and August, could pile downside pressure on the yuan.

"We estimate that China's outbound dividend payments will reach a new record this year, as more companies are now listed outside the mainland," Becky Liu, head of China macro strategy at Standard Chartered, said in a note.

Liu expected total dividend payments would rise by 13% in 2021 to $84 billion.

A spokeswoman for the foreign exchange regulator said on Friday that increased flexibility in China's yuan exchange rate can release market pressure and prevent expectations it will only move one way.

The regulator also expected China to have a current account surplus in the first quarter, though it would be smaller than the fourth quarter last year.

China's April manufacturing data will be another point of focus next week for clues on the pace of economic recovery after China reported slightly weaker-than-expected first quarter GDP.

"After a turbulent couple of weeks for Chinese markets, investors will hope that another strong PMI print can restore some confidence in the health of the recovery," analysts at ANZ said in a note.

China's official PMI is due for release next Friday.

The global dollar index fell to 91.213 at midday from the previous close of 91.287, while the offshore yuan was trading at 6.4964 per dollar.