China's yuan eases to 1-week low to reflect dollar rebound

SHANGHAI: China's yuan eased to a one-week low against a rebounding dollar on Monday, while many investors expect the Chinese currency to consolidate at current levels following sharp gains at the start of the year.

The dollar extended gains on Monday, as increases in US yields and hopes for more stimulus to boost the world's largest economy prompted some investors to temper bearish bets, pulling the currency further away from recent multi-year lows.

To reflect the strength in the greenback, the People's Bank of China (PBOC) set the midpoint rate at a one-week low of 6.4764 per dollar prior to market opening, 56 pips or 0.09% weaker than the previous fix of 6.4708.

In the spot market, the onshore spot yuan opened at 6.4761 per dollar and eased to a low of 6.4926, the softest level since Jan. 4. By midday, the spot yuan was changing hands at 6.4841, 81 pips weaker than the previous late session close.

Traders said losses in the yuan were tracking the stronger dollar, but the market was also taking a breather after last week's sharp rallies as the yuan appreciated more than 0.8% against the dollar after a near 7% rise in 2020.

And many market participants were cautiously gauging authorities' attitude towards a firmer yuan after the PBOC rolled out a slew of measures to reduce capital inflows last week.

"The recent high frequency of policy finetuning showed that China wanted to slow down the pace of RMB appreciation," Tommy Xie, head of Greater China research at OCBC Bank, said in a note.

"This may counter the seasonal demand for RMB ahead of Chinese New Year holiday. We expect the USD/CNY to be traded in a relative narrow range in the coming weeks."

PBOC Governor Yi Gang also told the official Xinhua news agency in an interview published on late Friday that China will continue to let the market play a decisive role in setting the yuan exchange rate in 2021.

China will keep the yuan exchange rate basically stable at a reasonable and balanced level, maintain a managed floating exchange rate regime, and pay attention to guiding expectations, Yi was quoted as saying.

The global dollar index rose to 90.404 at midday, when the offshore yuan was trading at 6.4835 per dollar.