Markets

Yuan set for slight weekly gain, traders eye Fed, Politburo next week

  • In the spot market, the onshore yuan opened at 6.4685 per dollar and was changing hands at 6.4716 at midday, 15 pips weaker than the previous late session close
Published July 23, 2021

SHANGHAI: China's yuan slipped against the dollar on Friday but still looked set for a marginal weekly rise, thanks to strong corporate demand and heavy foreign inflows.

Currency traders said the yuan was consolidating in a narrow range, with many participants refraining from making bets on the currency before a slew of potentially market moving events, including a Sino-US meeting later this week, and meetings of the US Federal Reserve and China's Politburo next week.

Prior to the market opening, the People's Bank of China (PBOC) set the midpoint rate at 6.465 per dollar, 1 pip firmer than the previous fix of 6.4651.

In the spot market, the onshore yuan opened at 6.4685 per dollar and was changing hands at 6.4716 at midday, 15 pips weaker than the previous late session close.

China's yuan weakens as central bank notches eighth straight softer fixing

If the yuan finishes the late night session at the midday level, it would have gained 0.11% to the dollar for the week, marking the second straight weekly rise and the best since late May.

Much of the market's attention is on the Politburo meeting, which usually takes place in the final week of the month, with the country's top decision-making body expected to comment on the economic situation in the first half of the year and key tasks for the second half, traders said.

A surprise cut in banks' reserves this month has sparked debate over whether Chinese policymakers are shifting towards an easier stance as the economy's post-COVID rebound has peaked and growth rates start to moderate.

"Top leaders are likely to maintain the current policy stance but turn less hawkish on the margin," said Larry Hu, chief China economist at Macquarie.

"Given the aggregate growth numbers are still steady, the focus in 3Q21 would remain on the micro side including anti-monopoly, environment policy and financial risks."

Traders are also watching a meeting between senior officials from China and the United States later this week, when US Deputy Secretary of State Wendy Sherman will meet with State Councillor and Foreign Minister Wang Yi and other officials.

Markets would be anxious to see how the world's two largest economies navigate a deeply troubled relationship.

"China-US tensions will likely be back in the news in H2 when President Biden's administration will have shifted their focus from domestic issues to foreign policy," said Raymond Young, chief economist for Greater China at ANZ.

The Fed, meanwhile, will hold a two-day policy meeting on July 27-28, with investors looking for more clues on its timeframe for tapering stimulus.

By midday, the global dollar index rose to 92.866 from the previous close of 92.831, while the offshore yuan was trading at 6.4731 per dollar.

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