BEIJING: China's yuan held steady against the dollar on Wednesday, while its value against major trading partners continued to hover at a 6-1/2-year high, reflecting sharp depreciation in the Russian rouble after the West ramped up sanctions against Moscow over its Ukraine invasion.
The People's Bank of China (PBOC) set its daily yuan midpoint rate at 6.3351 per dollar prior to market opening on Wednesday, 337 pips or 0.53% weaker than the previous fix of 6.3014.
The much weakened yuan official guidance, which largely matched market forecasts, pushed the yuan's trade weighted CFETS basket index up 2.64% year-to-date to 105.18, where losses in the rouble contributed about 65% of the gains, according to Reuters calculation based on official data.
The rouble's sizable losses against both the US dollar and the Chinese yuan translated to rises to the basket index, despite the Russian currency only counting for 3.66% of the CFETS basket. The Russian unit has plunged about 45% against the dollar and weakened more than 25% to the yuan.
"As China is not directly involved in this geopolitical event, the low volatility of the yuan seems to have attracted safe haven flows, pushing the Chinese currency to a recent years' high," said Raymond Yeung, chief economist for Greater China at ANZ.
"We believe (Chinese) policymakers are paying close attention to the heightened geopolitical risk. The authorities may reassess the timing and intensity of support measures for (economic) growth."
Yeung does not expect the current tensions between Russia and Ukraine will prompt the PBOC to alter its monetary policy stance.
In the spot market, the onshore yuan opened at 6.3131 per dollar and was changing hands at 6.3126 at midday, 13 pips weaker than the previous late session close.
Some analysts argued that China may not be completely immune to the Ukraine crisis as higher energy prices could drive domestic inflation.
"After all, indirect impact through higher energy prices and potential supply shortages can't be completely ignored," analysts at MUFG Bank said in a note.
"And the continued further worsening of the Chinese economy, and (expected) Federal Reserve rate hike this month would also help push CNY slightly weaker against USD."
The Japanese bank revised its yuan forecast to 6.35 per dollar at the end of the first quarter, up from 6.4 previously.
By midday, the global dollar index rose to 97.424 from the previous close of 97.409, while the offshore yuan was trading at 6.3153 per dollar.
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