SHANGHAI: China’s yuan traded near its firmest level against the dollar in more than two months on Wednesday, as mostly stronger October activity data and softer-than-expected US inflation helped improve investor sentiment onshore and offshore.

China’s industrial output grew at a faster pace last month and retail sales growth beat expectations, an encouraging sign for an economy still showing significant pockets of weakness despite a flurry of support measures.

Meanwhile, cooling inflation in the US convinced traders that rate hikes may have come to an end, dampening the dollar.

China’s onshore and offshore yuan rallied sharply in the late session on Tuesday following the inflation data.

Prior to the market’s opening, the People’s Bank of China set the midpoint rate, around which the yuan is allowed to trade in a 2% band, at 7.1752 per US dollar, 16 pips firmer than the previous fix 7.1768.

The spot yuan opened at 7.2545 per dollar and was changing hands at 7.2395 at midday, 117 pips firmer than the previous late session close and 0.90% away from the midpoint.

The spot yuan strengthened to a high of 7.2357 per dollar, strongest level since Aug. 11.

The offshore yuan was trading 30 pips weaker than the onshore spot at 7.2425 per dollar, its strongest level in more than two months.

The large gap between the offshore yuan and the onshore fixing also narrowed to the smallest since August, affirming China’s decision to keep the yuan fixing stable amid high US dollar volatility, analysts at DBS said.

China’s yuan slips as PBOC easing bets widen yield gap

China’s central bank ramped up cash injections but kept the interest rate unchanged when rolling over maturing medium-term policy loans on Wednesday, with net injections far exceeding market expectations.

Given the larger-than-expected cash injection, a potential cut in banks’ reserve requirement ratio (RRR) is now less likely in the near term, said UBS analysts.

The global dollar index rose to 104.08 from the previous close of 104.053.

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