Yuan edges up, market cautious ahead of annual meeting of parliament

SHANGHAI: China's yuan inched higher against the dollar on Monday as markets await policy cues on the broader economy from this week's annual gathering of the National People's Congress, China's parliament.

The annual meeting of parliament, which begins on March 5, will see China announcing goals for 2021 as well as its next five-year plan for economic development.

Several currency traders said they expected the yuan to trade in a thin range this week, largely maintaining stability in asset moves as is the norm for domestic financial markets during and before key economic and political events.

The onshore spot yuan opened at 6.4671 per dollar and was changing hands at 6.4637 at midday, 44 pips firmer than the previous late session close.

The yuan rallied more than 10% on the dollar during an eight-month winning streak since June that ended last month, as analysts say extended yuan strength has prompted authorities to roll out some measures to allow more capital outflows.

The strong currency and improving economic fundamentals have kept traders guessing on whether the NPC would signal a shift by policymakers to tighten monetary conditions soon to rein in financial risks amid still-high debt levels.

"The central bank aims to adjust the pace of policy normalization according to economic development and market conditions, taking into account pandemic related uncertainty and any credit market and rates volatility," Wang Tao, chief China economist at UBS, said in a note.

She said containing macro leverage and risk would be a critical part of the government's plan to normalize policies.

On the data front, markets hardly budged to tepid manufacturing surveys. Both the official and private business surveys released over the weekend and on Monday showed that China's factory activity expanded at the slowest pace in nine months in February.

Prior to market opening, the People's Bank of China (PBOC) set the midpoint rate at 6.4754 per dollar, 41 pips or 0.06% softer than the previous fix of 6.4713, and the weakest since Jan. 28.

The global dollar index traded at 90.813 by midday, while the offshore yuan was trading at 6.4703 per dollar.