China's yuan steady as traders await Fed meet

HONG KONG: China’s yuan traded in a narrow range against the dollar on Tuesday, as traders focused on this week’s upcoming meeting of the US Federal Reserve for clues to the path of interest rate policy.

A weaker midpoint fixing also curbed appreciation of the yuan.

By 0300 GMT, the spot yuan was 0.04% lower at 6.8305 against the dollar, after trading in a range of 6.8270 to 6.8313.

Prior to the market opening, the People’s Bank of China set the midpoint rate at 6.8589 a dollar, versus the previous session’s 6.8579, and 307 pips weaker than a Reuters’ estimate.

The spot yuan is allowed to trade 2% either side of the fixed midpoint each day. Federal Reserve policymakers gather in Washington this week for a meeting that may be Jerome Powell’s last as Fed chair, with a rate decision due on Wednesday.

While markets expect the Fed to keep rates unchanged, they are waiting for a bigger signal from his tone regarding the path of rates after he steps down from the role.

The uncertainties in US rate policy, coupled with geopolitical risk, have temporarily supported the dollar, analysts at Huatai Futures said in a note.

Despite a modest retreat, China’s yuan fixing guidance “remained broadly on the strong side,” they added, driven by resilience in exports.

The yuan is up 1.0% against the dollar this month, and 2.4% firmer this year. Analysts said it is likely to keep outperforming other Asian currencies as it emerged as a relative winner from the energy crisis brought on by the Iran war.

The next key event to watch is the US-China presidential summit in May, said Johanna Chua, an economist at Citi.

The bank believes the risks in US-China ties will stay contained, and expects the yuan to hit 6.8 in three months and 6.7 in six to 12 months.

The offshore yuan traded at 6.8312 yuan per dollar, down about 0.08% in Asian trade. The dollar’s six-currency index was at 98.59.