China’s yuan near 1-week high ahead of US data

SHANGHAI: China’s yuan hovered near a one-week high against the dollar on Tuesday, underpinned by firmer-than-expected central bank guidance, while investors anxiously awaited US inflation data for more clues on Federal Reserve rate hikes.

The dollar steadied ahead of the US consumer price index, which is due later in the session, which investors hope might show some signs of softening. Markets widely believe the Fed will deliver another 75-basis-point rate hike next week.

China’s yuan extends weakness, but persistently firmer fixing checks losses

Prior to the market opening, the People’s Bank of China (PBOC) set the midpoint rate at a one-week high of 6.8928 per dollar, 170 pips, or 0.25%, firmer than the previous fix.

The fixing came in stronger than market expectations for the 14th straight session, seen as an official attempt to rein in the yuan’s recent rapid declines.

The official guidance on Tuesday was 152 pips firmer than Reuters’ estimate of 6.9080.

“We believe China’s central bank will continue to keep the yuan exchange rate basically stable ahead of the ruling party’s 20th national congress that will kick off on Oct. 16,” said Qi Gao, FX strategist for Asia at Scotiabank.

“While it is less likely to see the yuan appreciating materially with the nation sticking to its dynamic COVID-zero policy at this stage, the CNY and CNH will likely rally markedly if China decides to ease COVID restrictions and reopen the border after the national party congress.”

The onshore yuan opened at 6.9150 per dollar and was changing hands at 6.9221 at midday, 78 pips firmer than the previous late session close on Friday.

Traders said the yuan had benefited from an easing dollar after the three-day Mid-Autumn holiday, noting the risks the local currency will test the psychologically important 7 mark still remained.

“The near-term depreciation pressure remains given the deteriorating trade outlook as well as uncertain growth outlook due to China’s zero-COVID strategy,” said Tommy Xie, head of Greater China research at OCBC Bank.

Market participants said they will closely monitor the PBOC’s monthly medium-term lending facility operation on Thursday, when 600 billion yuan ($86.67 billion) worth of policy loans mature.

China unexpectedly lowered key interest rates in August to revive credit demand and prop up the slowing economy.

By midday, the global dollar index fell to 108.196 from the previous close of 108.33, while the offshore yuan traded at 6.9257 per dollar.