China’s yuan eases ahead of Politburo and global central bank meetings

SHANGHAI/SINGAPORE: China’s yuan eased against the dollar on Monday, as corporate demand for the greenback offset a firmer-than-expected official guidance fix, while investors were also cautious ahead of a Chinese Politburo meeting and global monetary policy reviews.

The Politburo meeting, expected to be held this week, will see top decision makers gather to discuss the economy and set the policy tone for the second half of this year.

Overseas, the Federal Reserve will conclude a rate-setting meeting on Wednesday, followed by the European Central Bank a day later and the Bank of Japan on Friday.

Prior to the market’s opening, the People’s Bank of China (PBOC) set the midpoint rate at 7.1451 per dollar, 5 pips firmer than the previous fix at 7.1456.

The central bank continued a weeks-long trend of setting the midpoint firmer than market projections, over rapid yuan seen by investors as a sign of authorities’ growing discomfort weakness.

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Monday’s official guidance rate was 344 pips firmer than Reuters’ estimate of 7.1795.

And the fixing has been kept on the firmer side of the psychologically important 7.15 per dollar level for more than a week.

“We reckon that a static CNY fixing is a stronger policy to defend the currency before the key Politburo meeting, as it can draw a line in the sand for the CNY spot under the rule of a 2% daily trading range from the CNY fixing,” said Ken Cheung, chief Asian FX strategist at Mizuho Bank.

In the spot market, the onshore yuan opened at 7.1855 per dollar and was changing hands at 7.1926 at midday, 44 pips weaker than the previous late session close.

Traders said corporate dollar demand was strong towards the month-end, including from overseas-listed Chinese companies to fund dividend payments to their shareholders.

“Despite credible calls for a lower renminbi to support growth and battle deflation, it seems Chinese policymakers prefer to keep renminbi losses contained and prevent a ‘sell China’ mentality building,” said ING global head of markets Chris Turner.

By midday, the dollar index measure against a basket of key rival currencies, fell to 101.032 from the previous close of 101.071.

The offshore yuan was trading at 7.1962 per dollar.