Yuan firmer on strong activity data, investors await Fed and Sino-US meeting

SHANGHAI: China's yuan inched up against the dollar on Monday, supported by strong industrial output data, but gains were capped amid caution ahead of a US Federal Reserve policy meeting and talks between senior US and Chinese officials later this week.

Prior to market opening, the People's Bank of China (PBOC) set the midpoint rate at 6.501 per dollar, 165 pips or 0.25% weaker than the previous fix of 6.4845.

In the spot market, onshore yuan opened at 6.4950 and was changing hands at 6.5032 at midday, 56 pips firmer than the previous late session close.

Traders said market had expected upbeat activity indicators in the first two months of 2021 due to weak base effect caused by coronavirus disruption during the same period a year earlier, but some figures still surprised on the upside.

China's industrial output growth quickened in January-February, beating expectations, as the vast manufacturing sector started 2021 on a firm footing and the economy consolidated its brisk recovery.

"Overall, the robust China data should help alleviate concern over a slowdown of China growth for now after the announcement on the conservative GDP target at above 6%," Ken Cheung, chief Asian FX strategist at Mizuho Bank in Hong Kong, said in a note.

"Still, China's growth path will be full of uncertainties throughout the year as the government refrains from pouring sizable stimulus into the economy," he said.

Gains in the yuan were capped, with the spot rate swinging around 6.5 per dollar, as investors refrained from testing highs when dollar's trajectory and China-US policy under the Biden administration remained unclear.

Investors will be looking to the Fed meeting on March 16 and 17 for any comments about rising yields and the US economic growth outlook.

They will also listen out for whatever comes out of a meeting between US Secretary of State Antony Blinken and top Chinese officials on March 18 in Alaska. It will be the first high-level in-person contact between the world's two largest economies since US President Joe Biden took office.

Separately, China's central bank rolled over same amount of maturing medium-term loans earlier in the session while keeping the interest rate unchanged for an 11th straight month.

The global dollar index fell to 91.667 at midday, while the offshore yuan was trading at 6.5064 per dollar.