SHANGHAI: China’s yuan inched higher against the dollar on Thursday, supported by signs of tightness in money markets and expectations that data will show robust credit growth.
Prior to market opening, the People’s Bank of China (PBOC) set the midpoint rate at 6.7905 per dollar, 153 pips or 0.23% weaker than the previous fix of 6.7752.
In the spot market, the onshore yuan opened at 6.7922 per dollar and was changing hands at 6.7904 at midday, 36 pips firmer than the previous late session close.
China’s short-term money rates remained elevated on Thursday. The volume-weighted average rate of the overnight repo continued to hover at the highest level in two years, despite a generous injection of funds by the central bank to offset hefty maturing reverse repurchase agreements.
Traders and analysts attributed the upward pressure on cash rates to higher credit demand, which has sucked money out of the banking system.
A Reuters poll suggested that yuan loans extended by Chinese banks likely surged to a record high in January as the central bank moved to shore up growth in the world’s second-biggest economy following a lifting of pandemic controls.
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The data is expected to be released sometime between Feb. 9 to Feb. 15.
“The increase is likely above and beyond what could have been caused by the usual post-holiday effect,” said Tommy Wu, senior economist at Commerzbank, referring to the week-long Lunar New Year holidays that wrapped up at the end of last month.
“We would argue that it could be indicative of stronger loan demand. This will in fact be a positive sign of the anticipated economic recovery is underway.”
Gradual improvements in domestic economy and prospects for a strong rebound has reflected in the yuan’s appreciation at the start of this year, analysts at financial market department of China Construction Bank said in a note.
They expected the yuan to face resistance at around its 200-day moving average of 6.86 per dollar and have strong support at 6.7 this month.
The Chinese yuan has gained 1.6% so far this year, reversing much of losses in 2022, when saw the worst annual performance in 28 years.
Investors were cautiously testing highs in the yuan amid uncertainty around the US monetary tightening outlook. Markets will focus on the next week’s US inflation data for more clues, traders said.
By midday, the global dollar index fell to 103.353 from the previous close of 103.409, while the offshore yuan was trading at 6.795 per dollar.
The one-year forward value for the offshore yuan traded at 6.6377 per dollar, indicating a roughly 2.37% appreciation within 12 months.
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