SHANGHAI: China’s yuan eased against a strengthening dollar on Monday with investor sentiment subdued and the market awaiting China’s first-quarter economic data due on Tuesday.
The dollar bounced from a one-year low in global markets as resilience in core US retail sales, a rise in short-term inflation expectations and impressive Wall Street bank earnings increased market expectations of an interest rate increase in May.
Before the market opened, the People’s Bank of China (PBOC) set the midpoint rate at 6.8679 per dollar, 73 pips weaker than the previous fix of 6.8606.
The spot yuan opened at 6.8758 per dollar and was changing hands at 6.8769 at midday, 79 pips weaker than the previous late session close.
Currency traders said the dollar’s movements should dominate the yuan’s performance in the short term, while the domestic monetary policy stance and the pace of economic recovery could also affect sentiment.
The PBOC bank ramped up liquidity injection when rolling over maturing medium-term policy loans for the fifth consecutive month on Monday, while keeping the interest rate unchanged, matching market expectations.
The liquidity injection was smaller than a market consensus but higher than the amount maturing, suggesting the central bank is not particularly worried about the recovery of the economy, said Iris Pang, chief economist for Greater China at ING.
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Global investors are also keeping an eye out for Tuesday’s first-quarter gross domestic product (GDP) report to gauge the health of the world’s second-largest economy after it reopened its borders.
“While we are still waiting for the first-quarter GDP data due on Tuesday, the latest inflation and credit data for March have given us a first glimpse of China’s uneven recovery,” said Tommy Xie, head of Greater China research at OCBC Bank.
Stronger-than-expected export data in March also suggested an “upside bias” to first-quarter GDP, Xie added.
Meanwhile, the stronger dollar also undermined the yuan, after the Federal Reserve governor said on Friday that US central bankers “haven’t made much progress” in returning inflation to their 2% target and needed to move interest rates higher.
By midday, the global dollar index rose to 101.689 from the previous close of 101.552.
The one-year forward value for the offshore yuan traded at 6.7113 per dollar, indicating a roughly 2.49% appreciation within 12 months.
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