Yuan weakens slightly as Chinese regulator flags inflow risks

SHANGHAI: China's yuan softened slightly against the US dollar on Tuesday, as a top banking regulator said China is studying effective measures to manage capital inflows to prevent global turbulence from affecting the domestic market.

Guo Shuqing, head of the China Banking and Insurance Regulatory Commission, expressed wariness of the risk of bubbles bursting in foreign markets. He also flagged the risk of significant capital inflows into China.

But the yuan remains range-bound with traders expecting the market to stay calm as investors look for fresh direction from a key political conference in Beijing that starts on Friday.

In the spot market, the yuan opened at 6.4675 per dollar and was changing hands at 6.4725 at midday, slightly weaker than Monday's close.

That came despite the People's Bank of China setting the midpoint rate at 6.4625 per dollar prior to market open, firmer than the previous fix of 6.4754.

Global markets are starting to see side effects of fiscal and monetary policy steps in response to the COVID-19 pandemic, said Guo on Tuesday, adding that China was studying measures to manage capital inflows.

Guo's comments may have shed some light on the upcoming policy guidance from the National People's Congress (NPC), said Ken Cheung, strategist at Mizuho Bank Ltd.

This reflects "regulators' concern over asset bubble and capital inflow risk," he wrote.

Although most traders agree that the yuan will likely continue to be range-bound in the short-term, analysts were divided over longer-term trends.

China Construction Bank said the yuan still has room to appreciate against the dollar.

However, Founder Securities economist Yan Se said that yuan would face downward pressure in the four quarter, when the US economy is expected to recover more solidly from the COVID-19 pandemic.