SHANGHAI: China’s yuan inched lower against the dollar on Wednesday, as market participants continued to evaluate the impact from China’s steady lending benchmarks and possible changes in monetary policy stances at overseas central banks.
China stood pat on benchmark lending loan prime rates (LPRs) at the monthly fixing on Wednesday, matching market expectations, after the central bank kept its medium-term policy rate steady earlier last week.
“As deflationary pressure remains high in China, the People’s Bank of China (PBOC) will continue with its easing bias,” analysts at ANZ said in a note.
“We expect further rate cuts of 20 basis points in total in 2024 and cannot rule out the possibility of it cutting the reserve requirement ratio (RRR) to ensure adequate liquidity.”
The onshore yuan opened at 7.1279 per dollar and was changing hands at 7.1336 at midday, 136 pips weaker than the previous late session close.
Prior to 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 7.0966 per dollar, 16 pips firmer than the previous fix 7.0982.
China’s yuan falls to one-week low as dollar rebounds
However, traders and analysts said the central bank continued its months-long efforts of setting midpoint rates at levels stronger than they had projected, and they interpreted it as an official attempt to keep the yuan stable.
Wednesday’s official guidance was 334 pips firmer than Reuters estimate of 7.1300 per dollar.
Meanwhile, the Bank of Japan dashed hopes among some traders it would tweak its language to signal a near-term end to negative interest rates a day earlier, and markets bet the US Federal Reserve will soon begin cutting interest rates.
China remains an outlier among global central banks as it has a loosening bias in monetary policy to boost recovery, and the lower interest rates in the world’s second largest economy have propelled the yuan to a funding currency, traders said, adding any major changes in global central banks’ stances could affect the yuan and capital flows.
Traders also said trading has in general become tepid as many market participants have gone on holidays, but they expect some upside room in the yuan towards the year-end and Lunar New Year holidays, when exporters traditionally settle more of their foreign exchange receipts to make various payments, including year-end bonus handouts to employees.
By midday, the global dollar index rose to 102.208 from the previous close of 102.167, while the offshore yuan was trading at 7.1345 per dollar.
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