SHANGHAI: China's yuan rose to a near one-week high against the dollar on Tuesday as strong trade data contained some investor worries over softening economic growth following the central bank's decision to cut the reserve requirement to prop up the economy.
China's exports grew at a much faster than expected pace in June as solid global demand led by easing lockdown measures and vaccination drives worldwide eclipsed virus outbreaks and port delays.
The People's Bank of China (PBOC) said on Friday it would cut the amount of cash that banks must hold as reserves.
"The story of solid China growth and lingering capital inflow to RMB assets outweighed the negative impact from PBOC's dovish shift, leaving the RMB supportive in the near term," said Ken Cheung, chief Asian FX strategist at Mizuho Bank in Hong Kong.
China's yuan weakens as central bank notches eighth straight softer fixing
Cheung added that the upbeat trade data also offered some relief ahead of key second-quarter gross domestic product (GDP) data on Thursday.
Prior to market opening, the PBOC set the midpoint rate at 6.4757 per dollar, 28 pips firmer than the previous fix of 6.4785.
In the spot market, onshore yuan opened at 6.4695 per dollar and rose to a high of 6.4637 at one point, the firmest level since July 7. By midday, it was changing hands at 6.4651, up 111 pips from the previous late session close.
However, several market participants said trade was tepid and volumes thin, with investors refraining from placing big bets on the currency before the GDP data.
"Markets expect China's Q2 GDP to grow by 8.0% year on year," said Marco Sun, chief financial markets analyst at MUFG Bank.
"If the actual data meets expectations, the yuan may test 6.46 per dollar. On the contrary, if the actual year-on-year economic growth rate is significantly lower than 8.0%, there are chances for the yuan to test 6.49."
By midday, the global dollar index fell to 92.175 from the previous close of 92.22, while the offshore yuan was trading at 6.4672 per dollar.