SHANGHAI: China’s yuan was steady on Friday, as the central bank’s strong guidance for the currency offset pressure from a firm dollar as traders scaled back bets for a slew of US rate cuts this year in the wake of hotter-than-expected US inflation data.
The yuan was trading at 7.2366 per dollar at 0407 GMT, barely changed from the previous close. The central bank’s daily benchmark fixings and support from state-owned banks have slowed its decline even though it hit a five-month low of 7.2376 on Thursday.
The currency is down 1.9% this year, pressured by its relative low yields versus other currencies and outflows of foreign investment from an anaemic stock market.
Prior to market open, the People’s Bank of China set the midpoint rate, around which the yuan is allowed to trade in a 2% band, at 7.0967 per US dollar, firmer than the previous fix 7.0968.
“We continue to hold the view that this sub-7.10 fix post US-CPI certainly sends a strong signal that the PBOC is not willing to relinquish control on the yuan at all,” said Maybank analysts in a note.
The dollar hovered near a five-month high alongside US Treasury yields in the wake of hotter-than-expected consumer price data mid-week that forced a paring back of rate cut bets, although data on Thursday showed US producer prices increased only moderately in March.
“The PBOC will hold a defensive FX policy stance. Apart from suppressing the fix, the authorities will likely continue to endorse USD sales and tight CNH (offshore yuan) funding conditions by mainland Chinese banks,” HSBC analysts said in a note.
China’s yuan eases, market awaits data deluge from home, abroad for guidance
Maybank analysts said the strong fixing could keep the USD/CNH gains in check for the near-term but the yuan could look increasingly overvalued if this trend is sustained.
Market participants are awaiting China’s trade data due later in the day. China’s exports likely declined in March after they grew at a better-than-expected pace in the first two months of this year, a Reuters poll showed on Thursday, highlighting an uneven recovery in the world’s second-biggest economy.
In the spot market, the yuan opened at 7.2349 per dollar and was changing hands at 7.2366 at midday, little changed from the previous late session close.
The global dollar index rose to 105.352 from the previous close of 105.282. The offshore yuan was trading at 7.2565 per dollar.
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