SHANGHAI: China’s yuan rebounded to a near three-week high against the dollar on Wednesday, after breaching a key downside threshold a day earlier, with gains in the nation’s blue-chip stock index further helping to underpin sentiment.
Traders said the minutes of the Federal Reserve’s last meeting will be watched carefully for more clues on the US monetary outlook, which has buffeted global markets in recent months.
Prior to the market opening, the People’s Bank of China (PBOC) set the midpoint rate, around which the yuan is allowed to trade in a 2% band, at 7.1030 per dollar, 38 pips firmer than the previous fix of 7.1068.
The central bank continued its months-long practice of setting the official guidance at levels firmer than market projections, widely viewed by traders as an attempt to keep the currency stable. Wednesday’s midpoint was 847 pips firmer than a Reuters estimate of 7.1877.
China’s blue-chip CSI 300 index recouped all the losses this year to hit the highest level since early December, which provided a positive backdrop for the yuan, traders said.
In the spot market, the onshore yuan opened at 7.1937 per dollar and strengthened to a high of 7.1811 at one point, the strongest level since Feb. 2. It was changing hands at 7.1816 by midday, 109 pips firmer than the previous late session close.
China’s yuan slips on resurgent dollar
The spot price weakened past the psychologically critical 7.2 per dollar level to the weakest level since November a day earlier.
“Although the recent PBOC actions help to boost market confidence and cap USD/RMB topside, the Federal Reserve exerts the most influence on USD/RMB movements, rather than the PBOC, in our view,” analysts at BNP Paribas said in a note.
“We continue to believe USD/RMB will trade in a 7.1–7.3 range in the first half of this year.”
China announced its biggest ever reduction in the benchmark mortgage rate on Tuesday, as authorities sought to prop up the struggling property market and broader economy.
In the United States, last week’s data showing sticky inflation has seen markets push back on bets of an early start to the Fed’s easing cycle. The minutes of the Fed’s latest policy meeting, due on Wednesday, will give traders another chance to gauge policymakers’ thinking on the rates outlook.
By midday, the global dollar index fell to 103.991 from the previous close of 104.079, while the offshore yuan was trading at 7.1848 per dollar.
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