SHANGHAI/SINGAPORE: China’s yuan inched up against the dollar on Tuesday after the central bank continued to set a firmer-than-expected midpoint fixing, while extended financial policy support for the troubled property sector also underpinned sentiment.
China’s central bank on Monday extended a rescue package to shore up the real estate sector, which is struggling to gain traction despite a range of measures aimed at easing a liquidity crunch that has plagued it since mid-2020.
The move “could be a signal that more property easing is coming,” said Larry Hu, chief China economist at Macquarie.
“Looking ahead, we expect to see more easing on the demand side, such as lowering the down-payment ratio and easing purchase restrictions.”
Prior to market opening, the People’s Bank of China (PBOC) set the midpoint rate at a new three-week high of 7.1886 per dollar, 40 pips firmer than the previous fix of 7.1926.
The official guidance rate also continued to be set much stronger than market projections, traders and analysts said, which they see as a sign of Beijing’s increasing discomfort with recent yuan weakness.
Tuesday’s official midpoint was 291 pips stronger than Reuters’ estimate of 7.2177.
In the spot market, the onshore yuan opened at 7.2249 per dollar and was changing hands at 7.2116 at midday, 134 pips firmer than the previous late session close.
Traders and analysts said their attention will be on upcoming economic data to gauge the health of the broader economy, which remains the key to determine the yuan’s value.
China’s yuan weakens, hurt by disappointing inflation data
“Exports are expected to decline for the second straight month amid soft external demand while imports should continue contraction,” pointing to insufficient domestic consumption, said Lin Li, head of global markets research for Asia at MUFG Bank.
Over the near term, weak economic data along with widening interest rate differentials over the U.S will continue to weigh on yuan sentiment, she said.
Li expects the central bank to roll out more policy measures to dampen yuan depreciation expectations.China is due to release June trade and credit lending data this week.
A Reuters survey showed that China’s new yuan loans were expected to have risen further in June after nearly doubling in May, as the central bank kept policy accommodative to bolster a faltering economic recovery.
By midday, the global dollar index fell to 101.802 from the previous close of 101.972, while the offshore yuan was trading at 7.2141 per dollar.