Markets

Yuan rebounds from two-week low, talk focuses on China's policy options for stimulus

  • Different easing approaches could have different impact on the financial markets, and monetary easing could put downside pressure on the yuan in the short term
Published August 12, 2021

SHANGHAI: China's yuan on Thursday recovered from a two-week low against the dollar hit in the previous session, reflecting the dollar's retreat in global markets after a cooling US inflation dampened expectations for an earlier Federal Reserve tapering.

Prior to market opening, the People's Bank of China set the midpoint rate at 6.4754 per dollar, 77 pips or 0.12% firmer than the previous fix of 6.4831.

In the spot market, onshore yuan opened at 6.4760 per dollar and was changing hands at 6.4752 at midday, 38 pips firmer than the previous late session close. It hit a low of 6.4890 on Wednesday, the weakest since July 28.

Australia, New Zealand dollars hold gains as local data run hot

Traders said despite the gains in the spot prices, the yuan remained stuck in a tiny range of 30 pips in morning session.

Official data released on Wednesday showed that China's new bank loans fell in July to their lowest in nine months while broad credit growth hit a 17-month low, adding to market expectations that modest policy easing may be needed to underpin the country's economic recovery.

While the PBOC highlighted policy stability in its second quarter monetary policy report and dampened market expectations for aggressive monetary easing including interest rate cuts, analysts were debating what Beijing would do next.

"Looking ahead, we think fiscal policy implementation is likely to accelerate, and the remaining unissued special bonds will likely ease the fear of a further total social financing (TSF) slowdown," Citi analysts said in a note.

However, Goldman Sachs still sees chances for more monetary easing measures.

"The weak credit data and the recent resurgence of virus increased the likelihood of incremental policy easing in our view," they said in a note.

"We continue to expect one more reserve requirement ratio (RRR) cut later this year, and expect government bond net issuance to increase in the next few months which would support overall TSF growth."

Different easing approaches could have different impact on the financial markets, and monetary easing could put downside pressure on the yuan in the short term.

By midday, the global dollar index fell to 92.867 from the previous close of 92.893, while the offshore yuan was trading at 6.4769 per dollar.

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