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Markets

China yuan weakens on softer central bank fixing

  • A weaker yuan and shrinking premiums over US debt drove foreign investors to reduce their holdings of Chinse sovereign debt in March, the first monthly drop in more than two years.
08 Apr 2021

SHANGHAI: China's yuan edged lower against the US dollar on Thursday on a weaker central bank fixing, but remained near a multi-year high against a basket of other currencies.

Minutes of the US Federal Reserve's March policy meeting provided few catalysts to the market.

Fed officials remained cautious about the risks posed by the COVID-19 pandemic to the US economy, despite the boost from massive fiscal stimulus, and expects to keep supporting the economy "for some time," the minutes showed Wednesday.

Before the open, the People's Bank of China set the yuan's daily midpoint at 6.5463 per dollar, weaker than the previous fix of 6.5384.

After opening at 6.5500 per dollar, spot yuan firmed slightly to 6.5470 by midday, but was still 35 pips weaker than Wednesday's late session close.

The offshore yuan softened to 6.5506 per dollar from 6.5494 on Wednesday.

"The yuan is likely to fluctuate in a small range in the near term. There's no strong logic for it to break out," said a trader at a Chinese bank. "(But) a round of appreciation may be brewing if this sideways trend is prolonged."

The dollar index barely budged on Wednesday after the minutes' release, falling to 92.39 from a close of 92.414.

Prospects for a rapid US recovery have boosted the dollar and US yields this year. That has weighed on the yuan, which dipped nearly 2.4% between late January and late March.

A weaker yuan and shrinking premiums over US debt drove foreign investors to reduce their holdings of Chinse sovereign debt in March, the first monthly drop in more than two years.

But while the yuan has weakened against the US dollar, it has retained strength against other currencies.

The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 96.58, just half a percent off a 33-month high touched on March 24.

China's CFETS trade-weighted yuan basket has gained about 2% this year, according to Reuters' calculations based on official data "CFETS is close to near-term highs and it will be important to see if it can break past the 2018 highs, and that shall set the tone for next leg of renminbi, in our view," analysts at Citi said in a note.