Yuan ticks up as Beijing signals more economic support

HONG KONG: The yuan firmed on Thursday, despite a weaker guidance rate and a steady US dollar, as China's top policymakers vowed to keep cash abundant in financial markets and further support growth.

China's economy is gradually recovering from the coronavirus outbreak but demand remains soft amid job losses and concerns about the risk of a second wave of infections.

The onshore yuan strengthened 0.1pc to 7.0764 per dollar by midday and the offshore yuan firmed 0.09pc, while the greenback inched down merely 0.04pc against a basket of major currencies to 97.029.

Prior to the open, the People's Bank of China set the midpoint guidance rate at 7.0903, weaker than Reuters' estimate of 7.0866.

Yuan strength gathered momentum in morning trade as Vice Premier Liu He told a forum in prepared remarks that China should make monetary policy more flexible, keep liquidity reasonably ample and that the world's second-largest economy was improving..

"There is now expectation that there will be more support for the economy. Previously there were some worries about both COVID-19 and the central bank staying prudent in its policy," said Carie Li, economist at OCBC Wing Hang Bank in Hong Kong.

The capital Beijing has seen coronavirus cases rise to 158 in the past week which has sparked fears of a return to tough social restrictions that could hobble chances for recovery after the economy shrank 6.8pc in the first quarter, the first contraction on record.

The PBOC cut rates on 14-day reverse repos on Thursday, injecting a net 40 billion yuan, while the finance ministry auctioned 100 billion yuan of anti-epidemic special treasury bonds at lower-than-expected yields.

A trader in Shanghai said hopes of looser monetary policy was supportive for market sentiment, but another said safe haven demand in global markets would continue to weigh on the yuan.

"Problems such as the pandemic and the bubble in US stocks are still there," he said.