SHANGHAI: China’s yuan firmed slightly on Tuesday as the dollar retreated and offshore liquidity remained tight, while investors awaited September data this week for more clues on whether the economy is stabilising.
The US dollar retreated as the 10-year Treasury yield eased to 4.63% in Asian trading hours, after hitting a 16-year high of 4.88% last week.
Prior to the market opening, the People’s Bank of China set the midpoint rate, around which the yuan is allowed to trade in a 2% band, at 7.1781 per US dollar, 8 pips firmer than the previous fix of 7.1789.
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The spot yuan opened at 7.2706 per dollar and was changing hands at 7.2863 at midday, 72 pips or 0.1% firmer than the previous late session close.
Lower Treasury yields provide a breather for Asian currencies in general, including the yuan, said Maybank analysts.
However, elevated oil prices complicate the inflation and interest rate outlook, and the decline in US Treasury yields may be short-lived, the analysts said.
The defence level of the yuan trading around 7.32 against the dollar has persisted, but it should now get further help from the retreating US dollar, said Alvin Tan, head of Asia FX strategy at RBC Capital Markets.
The global dollar index fell to 106.067 from the previous close of 106.083.
Meanwhile, liquidity in the offshore yuan market remains tight, with CNH 3M HIBOR staying as high as 4.3394% on Tuesday.
The offshore yuan was trading 27 pips firmer than the onshore spot at 7.2837 per dollar.
Investors are also awaiting September credit, trade and inflation data this week.
China’s broad credit growth picked up from a record low in August while bank loan growth steadied. Analysts polled by Reuters expect new yuan lending jumped further last month as the central bank strives to boost the economy’s recovery amid tepid demand at home and abroad.
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