China’s yuan softens against the dollar after weaker fixing

HONG KONG: China’s yuan edged lower against the US dollar on Wednesday following a weaker midpoint setting, but market watchers said its appreciation trend appears intact with more rate cuts from the Federal Reserve expected in coming months.

By 0310 GMT, the yuan was 0.06% lower at 7.1165.

The offshore yuan traded at 7.1205 yuan per dollar, down about 0.09% in Asian trade.

Prior to the market opening, the People’s Bank of China set the midpoint rate at 7.1077 per dollar, 20 pips weaker than the previous level and largely in line with Reuters’ estimate.

The spot yuan is allowed to trade up to 2% either side of the fixed midpoint each day. Based on Wednesday’s official guidance, the yuan is allowed to drop as far as 7.2499.

“The yuan’s appreciation momentum has increased” as growing expectations for Fed rate cuts have put further pressure on the dollar, but overall market expectations remain broadly stable, analysts at BOCI Securities said in a note.

In move seen as an attempt to slow the pace of the local currency’s appreciation, some major state-owned banks have been buying dollars in the onshore spot market over the past few weeks.

“A break of the 7.10 is still possible but may take some time and that highly depends on the direction of the greenback and whether domestic demand can bottom out,” Maybank said in a note to clients.

The dollar’s six-currency index was 0.1% higher at 97.35, clawing back some grounds after two straight losing sessions.

US Federal Reserve Chair Jerome Powell said on Tuesday the central bank is in a “challenging situation” with an ongoing risk of faster-than-expected inflation at the same time that weak job growth has raised concern about the health of the labour market.

Markets are now priced for quarter-point rate cuts at each of the remaining two Fed policy meetings this year.