Yuan eases ahead of US jobs data, market focuses on Fed and PBOC stances

SHANGHAI: China's yuan eased slightly against a firmer dollar on Friday, as investors awaited US jobs data later in the session that could affect the Federal Reserve's monetary policy trajectory and fuel volatility in currency markets.

The dollar was supported in the lead up to the data, as markets braced for the numbers that could make the case for faster US policy tightening.

Prior to the market opening, the People's Bank of China (PBOC) set the midpoint rate at 6.4625 per dollar, 66 pips or 0.1% firmer than the previous fix of 6.4691.

China's yuan hits one-week low as recovery hopes lift dollar

In the spot market, onshore yuan opened at 6.4664 per dollar and was changing hands at 6.4643 at midday, 33 pips weaker than the previous late session close.

The yuan has been stuck in a very thin range of less than 150 pips around 6.46 per dollar this week and is set to wrap up almost flat against the dollar, as investors continued to wait for clearer policy guidance, traders said.

"The dollar is still likely to guide the yuan's movements in the short term," said a trader at a Chinese bank, referring to possible volatility in the dollar prompted by the US payrolls.

Traders are also monitoring the widening spread of the Delta coronavirus variant in China and government containment measures, clues on Beijing's policy stance from China's monthly benchmark lending rate fixing on Aug. 20, and Fed comments on possible timing of tapering at the annual Jackson Hole policy symposium later this month.

"We maintain our expectation that the US Fed will be ready to give advance notice on tapering at their Jackson Hole Retreat on 27-28 August or at the next FOMC meeting on 23 September," Irene Cheung, senior strategist for Asia at ANZ, said in a note.

"This will likely be followed by the announcement of a taper programme around the end of the year."

Many market analysts and economists said the timing of Fed tapering could be critical as that could allow the PBOC to ease its monetary policy to prop up the economy without triggering too much fluctuations in the yuan.

Meanwhile, Beijing's recent regulatory crackdown on the tech sector has added to a complicated picture of Chinese economic policy, amid a combination of debt deleveraging and monetary easing bias, said Alvin Tan, head of Asia FX strategy at RBC Capital Markets.

"The overarching point is that there is a shifting balance of risks on the renminbi towards a less positive outlook, even as important fundamental tailwinds remain," Tan said.

"We currently have a year-end forecast of USD/CNY 6.40, and that should be nudged higher to 6.45 in recognition of the shifting balance of risks."

By midday, the global dollar index rose to 92.356 from the previous close of 92.267, while the offshore yuan was trading at 6.4624 per dollar.