China’s yuan holds steady, looks set for longest monthly losing streak since 1994

SHANGHAI: China’s yuan held steady against the dollar on Friday after a volatile week, while investors look for the next catalyst without making huge bets on the currency for now.

Market participants await US PCE reports due later in the session and a policy decision from the Federal Reserve meeting next week for more clues on the US tightening trajectory, which could affect the dollar and other major currencies, traders said.

Nevertheless, the Chinese currency still looks set for an eighth-straight monthly loss in October, the longest losing streak since 1994 when China unified market and official rates.

Broad dollar strength against the backdrop of Fed tightening and a COVID-induced domestic economic slowdown have pressured the yuan this year.

The onshore yuan hit the weakest level in 15 years this week before making a record rebound after authorities rolled out a slew of measures to stem the depreciation, at a time the greenback also retreated to reflect expectations of less aggressive Fed rate hikes.

Raymond Yeung, chief economist for Greater China at ANZ, said China prefers a stronger yuan, while managing volatility has become its primary task.

“As the outlook for China’s external balance deteriorates, Chinese authorities will be wary of diminishing forex reserves,” Yeung said in a note.

He added China’s FX reserves, which stood at just above the closely watched $3 trillion level, has been bolstering investor confidence.

Prior to market opening, the People’s Bank of China (PBOC) set the midpoint rate at 7.1698 per dollar, 128 pips weaker than the previous fix 7.1570, the weakest level since Feb.15, 2008.

China’s digital yuan stands out in cross-border pilot

In the spot market, the onshore yuan opened at 7.2408 per dollar and was changing hands at 7.2232 at midday, 8 pips firmer than the previous late session close.

Trading was tepid on Friday, with volume shrinking to $11.08 billion by midday, down from a normal half-day volume of about $15 billion.

“It’s hard to figure out the yuan’s movements … market participants will watch the reaction after Fed rate decision next week,” said a trader at a Chinese bank.

By midday, the global dollar index fell to 110.378 from the previous close of 110.587, when the offshore yuan was trading at 7.23 per dollar.