HONG KONG: China’s yuan was largely flat against the dollar on Thursday and trading near a 16-month low, as investors weigh prospects for the central bank to further ease policy with a cut in banks’ reserve requirement soon.
State media Shanghai Securities News cited analysts as saying the central bank may lower the ratio before the approaching Spring Festival to ease seasonal tightness in liquidity.
The holiday is set to start on Jan. 28.
By 0359 GMT, the yuan was up 0.01% at 7.3315 to the dollar after having traded in a range of 7.3295 to 7.3318, just a hair away from the daily downside limit of 7.3319.
Prior to the market opening, the People’s Bank of China set the midpoint rate, around which the yuan is allowed to trade in a 2% band, at 7.1881 per dollar, or 1,366 pips firmer than a Reuters’ estimate. That showed the central bank’s continued support through a firmer-than-expected official guidance fix.
In recent months, China has rolled out measures from verbal warnings, tweaks to capital flows and issuance of offshore yuan bills aimed at avoiding a rapid depreciation of the yuan.
“The central bank is expected to keep the steady CNY fixing to anchor the RMB market before the Trump administration offers more clarity on the tariff plan,” Ken Cheung, chief Asian FX strategist at Mizuho Bank, said in a note.
China’s yuan stutters near 16-month low, a whisker away from downside limit
US President-elect Donald Trump is set to take office on Jan. 20. Overnight softer-than-expected US inflation data that brought forward US rate cut expectations and weakened the dollar, also put a floor under the yuan.
While Beijing may view significant yuan depreciation against the dollar as destabilising, in the mid-term it is likely to let the currency depreciate, both to mitigate the impact of additional tariffs and as a way to reflate, said Yan Wang, chief China strategist at Alpine Macro.
The offshore yuan traded at 7.3477 yuan per dollar, up about 0.03% in Asian trade.
The dollar’s six-currency index was at 109.07.
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