Yuan eases on higher corporate dollar demand, investors await Q1 GDP

SHANGHAI: China's yuan eased against the dollar on Thursday, snapping three straight days of gains on higher seasonal corporate greenback demand, while investors awaited first quarter GDP data for clues about the monetary policy outlook.

Prior to market opening, the People's Bank of China (PBOC) set the midpoint rate at 6.5297 per dollar, 65 pips or 0.1% firmer than the previous fix of 6.5362.

In the spot market, the onshore yuan opened at 6.5315 per dollar and was changing hands at 6.5392 at midday, 87 pips weaker than the previous late session close.

Traders said the yuan continued to swing in a tight range around 6.55 per dollar, with weakness in the morning session driven by companies seeking to settle dollar payments. Several market participants expected the local unit to continue tracking dollar movements in the near-term.

The yuan "should continue to trade along with the broader EM FX," Brown Brothers Harriman said in a note.

"However, the PBOC has allowed only limited weakness so far this year and we expected this to continue," it said, adding revived dollar strength could continue to weaken the yuan.

Separately, China's central bank injected 150 billion yuan ($22.94 billion) worth of medium-term loans into the banking system earlier in the session, roughly matching 100 billion yuan worth of maturing such loans and another 56.1 billion yuan worth of targeted medium-term lending facility (TMLF) expiring later this month.

Traders and analysts said the central bank was keen to maintain a neutral stance despite higher cash demand expected in coming days due to quarterly tax payments.

Stephen Innes, chief global markets strategist at Axi, said the operations suggested that "the bank was likely to maintain zero net injections", which was "not great for an economy that was not overheating."

However, some currency traders said a lot of market attention would be soon shifted to China's first quarter GDP, which is expected to show a strong economic rebound during the period due to low base effect, to gauge if policymakers would make any changes to its monetary policy stance.

"We expect real GDP growth to have jumped to 20% year-on-year in Q1 from 6.5% in Q4-2020, led by an overheated industrial sector and a recovering services sector," economists at Standard Chartered said in an earlier note.

The global dollar index rose to 91.683 by midday, while the offshore yuan was trading at 6.5426 per dollar.