SHANGHAI: China’s yuan held steady against the US dollar on Tuesday, with market attention diverted by the Bank of Japan’s historic decision to end negative rates and an upcoming Federal Reserve policy decision.
The Bank of Japan’s decision marks a landmark shift away from its huge stimulus programme and represents Japan’s first interest rate hike since 2007.
BOJ Governor Kazuo Ueda is expected to hold a news conference at 3:30 p.m. (0630 GMT).
The dollar index climbed to a two-week high of 103.668 on Tuesday, putting pressure on both the yuan and the yen despite anticipation that the BOJ would end negative rates.
“Statistically we found that the 3-month USD/CNH and USD/JPY correlation has been running high again, with the USD rebound exerting depreciation pressure on both CNH and JPY,” wrote Ken Cheung, chief Asian FX strategist at Mizuho Bank.
Prior to the market’s opening, the People’s Bank of China (PBOC) set the midpoint rate at 7.0985 per US dollar, 42 pips weaker than the previous fix of 7.0943.
The midpoint rate was 1,071 pips stronger than a Reuters estimate.
Spot yuan opened at 7.1950 per dollar and was changing hands at 7.1983 at midday, only 3 pips stronger than the previous late session close and 1.41% away from the midpoint.
The spot rate is currently allowed to trade with a range 2% above or below the official fixing on any given day.
Cheung said the PBOC may have drawn a line in the sand to defend spot yuan from breaking 7.2.
Offshore yuan was trading 80 pips weaker than onshore spot at 7.2063 per dollar.
Market attention is set to turn to a Fed policy decision on Wednesday that could provide clues on how soon the central bank might commence rate cuts.
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