SHANGHAI: China’s yuan eased against the dollar on Monday, but the size of the losses were capped as major state banks have increased their intervention in the markets to stabilise the local currency.
State banks have been swapping yuan for dollars in the forwards market and selling those dollars in the spot market, six banking sources told Reuters on Monday.
The moves come as the once-in-five-year Communist Party Congress gets underway this week, with traders expecting that China’s financial markets should be stable during the key political event.
Prior to market opening, the People’s Bank of China (PBOC) set the midpoint rate at 7.1095 per dollar, 7 pips weaker than the previous fix 7.1088.
Spot yuan is allowed to trade in a narrow range of 2% on either side of the daily midpoint fixing, and recent steady guidances have kept the yuan’s downside trading limit at 7.25 per dollar.
In the spot market, the onshore yuan opened at 7.1600 per dollar and was changing hands at 7.1985 at midday, 60 pips weaker than the previous late session close.
Li Lin, head of global markets research for Asia at MUFG Bank, said the congress should “largely drive market sentiment” this week, while noting the release of third-quarter key economic indicators will be among the main themes.
China is due to release its third-quarter gross domestic product data on Tuesday, and a Reuters poll showed that the economy was likely to underline the intensifying challenges at home and abroad, as an expected rebound in growth will still leave it poised for one of its worst years in almost half a century.
Yuan dips but steady fixing ahead of China Congress limits losses
Separately, Sheng Songcheng, a former PBOC official said China’s central bank still has many policy tools to guide yuan expectations and the currency is unlikely to have persistent sharp depreciation.
Earlier in the session, the PBOC fully rolled over maturing medium-term policy loans while keeping the interest rate unchanged for a second month, reinforcing expectations that conditions will continue to stay loose to help the pandemic-hit economy.
At midday, the global dollar index fell to 113.016 from the previous close of 113.311, while the offshore yuan was trading at 7.2042 per dollar.