SHANGHAI: China’s yuan firmed slightly on Wednesday, with some traders focusing on the upcoming European Central Bank meeting to see if it can offer more clues on rate hikes.
Market participants remained cautious, however, amid large fluctuations in commodity prices, including oil, as Russia’s invasion of Ukraine continued into the 14th day and Western sanctions against Moscow mounted, traders said.
The People’s Bank of China set the yuan midpoint rate at 6.3178 per dollar prior to market open, firmer than the previous fix of 6.3185.
In the spot market, the yuan opened at 6.3159 per dollar and was changing hands at 6.3175 at midday, 20 pips stronger from the previous late session close.
The European Central Bank meets on Thursday with the spectre of stagflation prompting economists to figure that policymakers might delay rate hikes until late in the year.
Sanctions on Russia have made China’s yuan somewhat of safe haven currency, Tianfeng Securities said in a note.
However, “the yuan faces depreciation pressure at the moment, while a catalyst hasn’t emerged, exports will be a key indicator to watch,” it said.
China’s export growth slowed in the January-February period largely due to base effects, though the data beat expectations.
China’s factory inflation in February eased to the slowest annual pace in eight months due to seasonal effects from the Lunar New Year holiday, but analysts expect it to rise in the coming months because of surging global commodity prices.
Some analysts said the scope for monetary easing may be limited due to the threat of higher commodity prices.
“The risk of stagflation is rising for the global economy. It is also a problem for China, although to a less extent, as the domestic energy prices are regulated, hence the passthrough to domestic prices is delayed and muted,” Zhiwei Zhang, chief economist at Pinpoint Asset Management, said in a research note.
US President Joe Biden on Tuesday announced a ban on Russian oil and other energy imports, a significant move in piling pressure on President Vladimir Putin to halt his devastating assault on Ukraine.
China’s central bank said on Tuesday it will pay more than 1 trillion yuan ($158.31 billion) in profit to the central government this year.
“The PBoC’s move reduces the likelihood of an RRR cut in H1. However, we still believe that the PBoC may replace matured medium-term lending facility in H2,” Zhaopeng Xing, Senior China Strategist at ANZ said in a note.
The CFETS Yuan basket index, which values the Chinese currency against peers of its major trading partners, extended gains to hit a fresh record high at 107.27.
The global dollar index fell to 98.994 from the previous close of 99.062. The offshore yuan was trading at 6.323 per dollar.
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