China's yuan firms against a directionless dollar

SHANGHAI: China’s yuan firmed slightly on Monday against a directionless dollar, caught between the global energy shock and cooling inflation at home.

Analysts expect the dollar-yuan rate to remain range-bound as strong exports support the Chinese currency but weak domestic consumption reduces its appeal.

“The yuan is likely to be highly correlated with the dollar index, and will fluctuate within a range,” Nanhua Futures said in a note to clients.

On Monday, the onshore yuan changed hands at 6.7719 per dollar in late morning trading, roughly 0.05% firmer than the previous day’s close.

The dollar index eased 0.03% in Asia trade.

“The dollar has lost direction,” Huatai Futures said in a report.

“Inflation premium from the energy shock has been counteracted by recent unwinding of bets on Fed rate hikes.”

Over the past week, renewed US strikes on Iran have boosted global oil prices, but US inflation data came in softer than markets had expected.

With the dollar stuck, “China’s steadily expanding trade surplus will provide core support to the yuan in the coming months,” Nanhua Futures wrote.

China’s June exports jumped 27%, well above market forecasts.

At the same time, China’s economy expanded at its slowest pace in more than three years in the second quarter, weighed down by drooping domestic demand.

“After weaker-than-expected Q2 GDP, we expect policymakers to strengthen easing rhetoric and accelerate the implementation of already-planned demand-side measures” during the Politburo meeting later this month, Goldman Sachs said.

Fresh stimulus could help revive the economy and increase the appeal of yuan assets. On Monday, China kept benchmark lending rates unchanged for a 14th consecutive month.