SHANGHAI: China’s yuan eased against the dollar on Tuesday, after its central bank head said monetary policy would continue to be accommodative to support economic recovery.
The comments to state media by People’s Bank of China (PBOC) Governor Yi Gang contrasted with the hawkish stance of other global central banks, raising market concerns of an increasing divergence in monetary policy.
The remarks, along with recent higher cash injections via open market operations to smooth half year-end liquidity tensions, pressured the yuan’s swap curve in the forwards market into negative territory and weighed on yuan expectations, currency traders said, although the impact was expected to be limited.
“As long as the PBOC maintains an accommodative monetary policy but not the ultra-loose easing akin to Bank of Japan’s (BOJ) style, we do not expect JPY-similar depreciation to take place in the RMB market,” said Ken Cheung, chief Asian FX strategist at Mizuho Bank, noting the yuan weakness was cyclical.
Prior to the market opening, the People’s Bank of China (PBOC) set the midpoint rate at 6.693 per dollar, 80 pips weaker than the previous fix of 6.685.
China’s yuan set for first weekly gain in three
In the spot market, onshore yuan opened at 6.6980 per dollar and was changing hands at 6.6972 at midday, 32 pips weaker than the previous late session close.
Spot yuan hovered in a very thin range of less than 80 pips in morning deals, with some participants saying the market was waiting for more clues from upcoming economic data for a clear direction.
June economic indicators, including official factory activity data, are due later this week.
Separately, sources told Reuters that China was considering extending its onshore currency trading hours to 3 a.m. Beijing-time (1900 GMT) from 11:30 p.m. (1530 GMT) at present, a move that could spur demand for the yuan from global investors.
By midday, the global dollar index fell to 103.924 from the previous close of 103.939, while the offshore yuan was trading at 6.6946 per dollar.