SHANGHAI: The yuan edged up against the dollar on Wednesday, despite gains in the greenback overseas, as remarks from a senior official at China's central bank dampened market expectations for imminent policy easing measures.
Sun Guofeng, head of the monetary policy department at the People's Bank of China (PBOC), said there was no big shortfall of base money, and liquidity supply and demand would remain basically balanced in coming months.
"Based on the tone and messages we lower the probability of a targeted reserve requirement ratio (RRR) cut in September-October to 50% from 70% previously, as the PBOC could opt to use some alternative low-profile and more targeted tools for supporting groups such as SMEs," Lu Ting, chief China economist at Nomura, said in a note.
China's yuan firms after strong export data
Monetary easing should theoretically pile downside pressure on the currency in the short term, according to analysts, who added that surprisingly strong export data this week has reduced chances of an imminent move.
But Carie Li, economist at OCBC Wing Hang Bank, said markets would pay attention to upcoming August inflation and lending data, which could offer more clues on "whether the PBOC would lower the RRR again in the next few months".
Prior to market open, the PBOC set the midpoint rate at 6.4674 per dollar, 141 pips or 0.22% weaker than the previous fix of 6.4533, the weakest since Sept. 1.
In the spot market, onshore yuan opened at 6.4631 per dollar and was changing hands at 6.4636 at midday, 34 pips firmer than the previous late session close.
Traders said some capital inflows into Chinese stock markets and the central bank's downplaying liquidity support have underpinned the yuan and offset a stronger dollar.
Data showed that overseas investors have net purchased 2.7 billion yuan worth of shares in A-share markets in morning trade.
In global markets, the dollar hovered near a one-week peak against major peers, buoyed by higher Treasury yields and a weaker euro amid caution before a European Central Bank policy decision.
By midday, the global dollar index rose to 92.537 from the previous close of 92.536, while the offshore yuan was trading at 6.46 per dollar.
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