SHANGHAI: China’s yuan eased against the dollar on Wednesday, with market participants cautious ahead a Federal Reserve policy meeting and largely shrugging off strong upward adjustment of central bank guidance for the currency’s trading midpoint.
Meanwhile, the fast spread of COVID-19 infections had also dented sentiment, traders said.
The dollar/yuan rate “remains trapped by opposing forces of concerns over the current COVID wave and news of further easing of restrictions,” analysts at Maybank said in a note.
Prior to market opening, the People’s Bank of China (PBOC) set the midpoint rate at a new three-month high of 6.9535 per dollar, 211 pips or 0.3% firmer than the previous fix of 6.9746.
In the spot market, the onshore yuan opened at 6.9480 per dollar and was changing hands at 6.9618 at midday, 118 pips softer than the previous late session close.
Trading was tepid in morning deals, with volume of $9.1 billion around midday, compared with a normal half-day volume of about $15 billion.
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Cautious trading ahead of the closely watched Fed decision due later in the session was among the key factors dampening trading, which usually drop towards the year-end holiday seasons, several currency traders said.
“Working from home in A-B teams due to recent spikes in COVID-19 infections has affected work efficiency,” said a trader at a foreign bank.
Some of them also said regulators had offered support for remote trading.
After delivering four consecutive 75-basis-point hikes, the US central bank is widely expected to increase interest rates by 50 basis points as it concludes its two-day meeting on Wednesday.
“Interest rate differentials still favour USD …. But we believe that (Chinese) exporters are more likely to convert their USD into CNY because their historical behaviour suggests that they will buy CNY when it is strong and vice versa,” analysts at Morgan Stanley said in a note.
The bank expects the Fed’s rate-hiking cycle to end in January 2023 and projects another 3% of yuan appreciation against the dollar next year.
Chinese companies usually have higher demand for the local currency for various payment needs in the run-up to the year-end and Lunar New Year holidays.
By midday, the global dollar index had risen to 104.08 from the previous close of 103.98, while the offshore yuan was trading at 6.9676 per dollar.
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