Yuan eases to 10-day low, policy easing views seen reduced

SHANGHAI: The yuan eased to a 10-day low against the dollar on Monday, but the Chinese economy's solid first quarter performance has tempered expectations that

Beijing will step up more stimulative policies. The renminbi strengthened past 6.7 per dollar briefly last week, underpinned by a raft of surprisingly strong economic data, suggesting that the broad economy may have started to stabilise.

The politburo, a top decision-making body of the Communist Party, then followed up by saying on Friday the government would maintain policy support for the economy, which still faces "downward pressure" and difficulties.

It added that the authorities would strike a balance between stabilising economic growth, promoting reforms, controlling risks and improving people's livelihoods.

Tommy Xie, head of Greater China research at OCBC in Singapore, said the politburo's remarks suggested market views ,mof further marginal monetary easing, such as via a cut in banks' reserve requirement ratio (RRR), was limited.

Prior to market opening on Monday, the People's Bank of China (PBOC) set the midpoint rate at 6.7035 per, eight pips firmer than the previous fix of 6.7043.

In the spot market, onshore yuan opened at 6.7060 per dollar and fell to a low of 6.7150 at one point, the weakest since April 12.

As of midday, the onshore spot yuan was changing hands at 6.7135, 86 pips weaker than the previous late session close and 0.15 percent softer than the midpoint.

Despite hitting a 10-day low in the morning session, the Chinese currency traded narrowly as it did last week.

Traders said the market was relatively subdued as some overseas markets were shut for Easter Monday.

"Unless there is some unexpected liquidity event, we expect markets to remain relatively quiet in holiday mode," Stephen

Innes, head of trading at SPI Asset Management, said in a note. Several yuan traders also expected the Chinese currency to continue tracking movements in the global dollar index.

Another catalyst is the ongoing Sino-U.S. trade negotiations, said a trader at a Chinese bank, as many market participants believe the bilateral discussions will likely come to an end soon.

"Looking ahead, USD/CNY is expected to remain within its 6.67-6.75 range of the past two months," strategists at DBS Group Research said in a note on Monday.

The politburo's statement came two days after China posted steady 6.4 percent annual growth in January-March, defying expectations for a further slowdown.

While more forceful policy easing may not be on the cards, Xie of OCBC added: "However, as mentioned by the politburo for the first time that the economy is still facing downward pressure due to structural and systemic reasons, this implies that there is no U-turn in China's stimulative policies in the near term," he said.