SHANGHAI: China’s yuan inched lower against the dollar on Monday, as investors were cautious ahead of a busy week of overseas central bank monetary policy meetings that could lead to some volatility in currency markets.
The Bank of Japan is seemingly on the brink of ending negative rates on Tuesday, while the market is also focused on the Federal Reserve’s rate outlook due on Wednesday.
Other central banks in Britain, Australia, Norway, Switzerland, Mexico, Brazil and Indonesia are due to meet, with most expected to stand pat on rates.
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 7.0943 per dollar, 32 pips firmer than the previous fix of 7.0975.
Despite the stronger guidance fix, the central bank continued its months-long practice of setting the rate at levels firmer than market projections, widely viewed by traders as an attempt to keep the currency stable.
Monday’s midpoint was 1,052 pips firmer than a Reuters estimate of 7.1995. “Policymakers are still very keen on maintaining FX stability - the countercyclical factors in the daily yuan fixing remained deeply negative in recent weeks, showing policymakers’ strengthening bias despite the depreciation pressures on the yuan due to unfavorable interest rate spreads,” analysts at Goldman Sachs said in a note.
In the spot market, the onshore yuan opened at 7.1940 per dollar and was changing hands at 7.1973 at midday, 8 pips weaker than the previous late session close.
China’s yuan holds steady as PBOC leaves key rate unchanged
“The key focus remained as the Fed outcome this week,” said a trader at a foreign bank.
The market had little reaction to better-than-expected Chinese economic activity indicators released on Monday.
Factory output and retail sales beat expectations in the January-February period, marking a solid start for 2024 and offering some relief to policymakers even as weakness in the property sector remains a drag on the economy and confidence.
By midday, the global dollar index fell to 103.421 from the previous close of 103.432, while the offshore yuan was trading at 7.2032 per dollar.
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