SHANGHAI: China's yuan firmed on Monday, underpinned by corporate demand, while signs suggesting policymakers have grown increasingly uncomfortable with the currency's recent rally prompted some investors to trim their bullish bets.
Demand from companies to convert their foreign exchange into yuan largely offset a rising dollar, a weaker-than-expected official yuan midpoint rate and a proposal asking banks to cap the size of their proprietary trading accounts, traders said.
Chinese companies traditionally have higher yuan demand for various payments in the last two months of the year, which could continue to lend support.
Prior to market opening, the People's Bank of China (PBOC) set the midpoint rate at 6.3952 per dollar, 127 pips or 0.2% weaker than the previous fix of 6.3825.
The fixing was also weaker than market projections, and it was 72 pips softer than Reuters estimate of 6.3880 per dollar.
"Going forward, China's central bank will continue setting USD/CNY with an upward bias if needed to curb speculation in our view," Gao Qi, FX strategist at Scotiabank, said in a note.
In the spot market, the onshore yuan opened at 6.3908 per dollar and was changing hands at 6.3841 at midday, 25 pips firmer than the previous late session close on Friday.
Sources told Reuters on Friday the Foreign Exchange Market Self-Discipline Mechanism has proposed that commercial banks cap the volume of their proprietary trading accounts, with many market participants interpreting it as a move to limit financial institutions' speculation on the yuan.
"The potential for greater divergence in monetary policies between China versus other major economies in 2022 could bring about volatility for the yuan and the authorities are clearly concerned about further amplification by FX speculators," analysts at Maybank said in a note.
But they added that factors including hopes for possible US-China tariff reductions, China's growing trade surplus and ample dollar liquidity onshore could continue to support the yuan.
They expect the Chinese currency to stay in a range of 6.37 to 6.4080 per dollar.
In global markets, the safe-haven US dollar hovered at a near 16-month high on growing anxiety over the impact of surging COVID-19 infections in Europe and a faster pace of stimulus tapering in the United States.
By midday, the broad dollar index rose to 96.147 from the previous close of 96.138, while the offshore yuan was trading at 6.3857 per dollar.
Comments
Comments are closed.