SHANGHAI: China's yuan on Tuesday eased from a near one-month high against the dollar hit a day earlier, as the currency's strength against those of its major trading partners raised investor concern of a dampening effect on exports.
Still, the yuan slipped relatively less than its peers against a rising dollar, which currency traders said reflected recent positive developments in Sino-US relations.
Persistent strength in the yuan against a basket of currencies has unsettled some market participants who have held back from testing new highs, traders said. The market will pay close attention to trade data due on Wednesday for any signs a stronger yuan has had an impact on China's exports.
Prior to the market opening, the People's Bank of China (PBOC) set the midpoint rate at 6.4447 per dollar, 32 pips or 0.05% firmer than the previous fix of 6.4479, the strongest since Sept. 16.
The firmer official guidance pushed China's trade-weighted yuan basket index to a fresh more than 5-1/2-year high of 100.26, up 5.71% so far this year, according to Reuters' calculations based on official data.
In the spot market, onshore yuan opened at 6.4602 per dollar and was changing hands at 6.4530 at midday, 17 pips weaker than the previous late session close. The spot price touched a high of 6.4340 per dollar on Monday, the strongest since Sept. 16.
Apart from the strong basket index, "markets were also cautious about the timing of US Federal Reserve's policy tapering, as such tightening could boost the dollar and reverse the yuan's strengthening trend," said a trader at a Chinese bank.
Separately, markets were waiting on whether the PBOC would take any policy action when rolling over a batch of 500 billion yuan ($77.5 billion) worth of medium-term loans due on Friday.
"At first glance, it appears that the PBOC reserves plenty of policy room for easing while the Fed has to pull the trigger on the tapering soon and bring forward its rate hike timing to curb inflation," said Ken Cheung, chief Asian FX strategist at Mizuho Bank in Hong Kong.
"Yet, the surging China PPI suggested that the PBOC might not have such ample policy leeway to deliver an aggressive rate cut."
Elsewhere, some signs of liquidity tightness emerged in Hong Kong, with the offshore yuan's overnight CNH HIBOR rising to 4.425%, the highest since Aug. 31.
Some traders and market analysts said such tightness came as banks in Hong Kong scrambled for short-term liquidity before a possible local market closure due to a typhoon.
By midday, the global dollar index stood at 94.337, while the offshore yuan was trading at 6.455 per dollar.
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