SHANGHAI: China’s yuan eased slightly against the dollar on Tuesday but found some support above levels seen as red lines for authorities, while caution ahead of upcoming global central bank meetings also kept the losses in check.
Central banks including, US Federal Reserve, the Bank of England and Bank of Japan, are schedule to hold policy-setting meeting later this week, which could inject fresh volatility into foreign exchange markets if they produce surprises.
Prior to the market opening, the People’s Bank of China (PBOC) set the midpoint rate, around which the yuan is allowed to trade in a 2% band, at a one-month high of 7.1733 per US dollar, 3 pips firmer than the previous fix of 7.1736.
The PBOC’s months-long trend of setting firmer-than-expected official guidance fix is widely seen by markets as an attempt by policymakers to stem rapid yuan declines. Tuesday’s official fixing was 1,106 pips stronger than Reuters’ estimate of 7.2839.
In the spot market, the onshore yuan opened at 7.2850 per dollar and was changing hands at 7.2935 at midday, 15 pips softer than the previous late session close.
Currency traders said their corporate clients appeared to have higher dollar demand, which pressured the local currency, but they noted that investors became cautious as the yuan weakened towards the psychologically important 7.3 per dollar level.
“Recent comments made by the state media also showed that the authorities are keen to control the yuan depreciation,” said a trader at a Chinese bank.
The depreciation pressure on the Chinese yuan against the US dollar is temporary, Economic Daily, a newspaper run by China’s State Council, said on Tuesday, noting that its value against major trading partner currencies was stable.
“We continue to monitor if early signs of data improvement and PBOC warning can further translate into more meaningful pullback in USD/CNH,” Christopher Wong, FX strategist at OCBC Bank, said in a note.
“For RMB to stabilise fundamentally and recover would still require China economic activities to pick up, confidence to be ‘repaired’ and USD to turn lower.”
Markets will closely monitor China’s monthly fixing of benchmark loan prime rate (LPR) due on Wednesday.
Most new and outstanding loans in China are based on the one-year LPR, while the five-year rate influences the pricing of mortgages.
By midday, the global dollar index fell to 105.14 from the previous close of 105.202, while the offshore yuan was trading at 7.2985 per dollar.
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