SHANGHAI: The yuan held steady against the US dollar on Thursday, as China’s stock market stabilised after the appointment of a new securities regulatory head buoyed sentiment amid concerns about deflationary risks in the world’s second-largest economy.
China ousted the head of its securities watchdog, state media said on Wednesday, replacing him with a veteran regulator with a reputation for tough action as policymakers struggle to steady the country’s stock markets hovering around 5-year lows.
Yuan sentiment will more likely be dependent on any new policy announcements aimed at supporting Chinese stock markets ahead of the Lunar New Year, said Chang Wei Liang, FX and credit strategist at DBS.
The Chinese currency has fallen nearly 1.4% since the start of the year, with investors raising their bets for further policy easing over the near term.
“Chinese policy inclination is clearly to bolster markets into holidays, and the offshore yuan could stabilise against the dollar within the 7.18-7.22 range on anticipation of more support,” Chang said.
China’s yuan holds steady on signals to support slumping stock market
Chinese stock markets extended their bounce on Thursday, underpinned by the prospect of more policy support from Beijing though the mood remains fragile.
Earlier in the day, data showed China’s consumer prices extended their decline for a fourth month in January while producer prices also dropped, underscoring deflationary risks as the economy struggles to mount a solid recovery.
“Markets were not expecting an encouraging picture from the consumer prices data. However, it could take worsening data to trigger further policy support,” Citi analysts said in a note.
Prior to the market’s opening, the People’s Bank of China set the midpoint rate, around which the yuan is allowed to trade in a 2% band, at 7.1063 per US dollar, 14 pips weaker than the previous fix of 7.1049.
The spot yuan opened at 7.1900 per dollar and was changing hands at 7.1950 at midday, 7 pips firmer than the previous late session close.
The global dollar index fell to 103.99 from the previous close of 104.057.
The offshore yuan was trading 139 pips weaker than the onshore spot at 7.2089 per dollar.
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