SHANGHAI: China’s yuan was largely flat on Monday as investors assessed domestic and global monetary policy outlooks and took a cautious stance in the wake of mounting tensions in China-US relations.
China’s currency remains under pressure as a slew of US data in recent weeks has bolstered market expectations that the Federal Reserve will have to keep raising rates higher for longer, which in turn have buoyed the dollar.
The People’s Bank of China set the midpoint rate at 6.8643 per US dollar prior to market open, slightly firmer than the previous fix 6.8659.
In the spot market, the yuan opened at 6.8680 per dollar and was changing hands at 6.8668 at midday, 7 pips softer from the previous late session close.
As widely expected, China kept its benchmark lending rates unchanged for a sixth straight month in February, with the world’s second-largest economy showing more signs of recovery from a pandemic-induced slump.
In the United States, however, markets are now expecting the Fed funds rate to peak just under 5.3% by July.
“Looking ahead, a series of Fed’s speeches and the FOMC(Federal Open Market Committee) minutes will be closely scrutinized to assess the Fed’s policy outlook,” said Ken Cheung, Chief Asian FX Strategist at Mizuho Bank.
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In a note to clients, China International Capital Corp said the US dollar will likely maintain its uptrend ahead of US job data in March. It expects the yuan to trade between 6.8 and 6.95 this week.
On the geopolitical front, there was no sign of cooling China-US tensions as US Secretary of State Antony Blinken on Saturday warned top Chinese diplomat Wang Yi of consequences should Beijing provide material support to Russia’s invasion of Ukraine.
Wang also scolded Washington as “hysterical” in a running dispute over the US downing of a suspected Chinese spy balloon.
“The meeting between Wang Yi and Antony Blinken on the weekend did little to ease tensions between the two and instead adding more fuel to the fire,” Maybank analysts said in a note.
By midday, the global dollar index was up at 103.977 from the previous close of 103.862, while the offshore yuan was trading at 6.8742 per dollar.