Yuan steady as markets await Fed decision, China policy signals

SHANGHAI: China’s yuan was little changed as investors awaited a US Federal Reserve policy decision due later on Wednesday that could sway the currency pair, while also watching for signals from a key domestic policy meeting.

The spot yuan opened at 7.0660 per dollar and was last trading at 7.0627 as of 0243 GMT, 6 pips firmer than the previous late session close.

Markets are waiting for clues to next year’s growth targets from China’s annual central economic work conference, usually held in December, while traders also look to credit-lending data due this week for signs of economic momentum.

The dollar index edged up 0.015% to 99.23, with moves in other major currencies muted ahead of a Fed meeting later in the day that is expected to be one of the most contentious in years, which investors are betting will yield a rate cut.

Underlying trends suggest weak domestic demand is unlikely to recover in the near term, after China’s annual consumer inflation accelerated to a 21-month peak in November.

The rise was mainly driven by food prices, while factory-gate deflation deepened.

However, the inflation figure suggested there was no sign of deflationary risk, said Marco Sun, chief financial market analyst at MUFG (China).

So the central bank is expected to maintain its current stance of a generally accommodative but prudent policy rather than introducing additional stimulus in response to deflation concerns, he added.

Prior to the market opening, the People’s Bank of China set the midpoint rate at 7.0753 per dollar, 26 pips weaker than a Reuters’ estimate. The spot yuan is allowed to trade 2% either side of the fixed midpoint each day.

The yuan is expected to maintain a steady upward trend against the US dollar, Hu Yifan, regional chief investment officer at UBS Global Wealth Management, said on Wednesday.

 It will hover around 7.0 through year-end and into the first half of next year, before strengthening to about 6.9 in the second half, as US rate cuts and a mild dollar depreciation come into play, she told a media briefing.

The offshore yuan traded at 7.0612 yuan per dollar, up about 0.01% in Asian trade.