Yuan steady in thin trading ahead of holiday; focus shifts to Fed

SHANGHAI: China’s yuan held steady against the US dollar on Wednesday in thin trade ahead of a public holiday, as a lack of fresh policy signals from this week’s Politburo meeting kept investors focused on the Federal Reserve’s rate decision later in the day.

The Politburo, a top decision-making body of the ruling Communist Party, reiterated China’s “proactive” fiscal stance and “appropriately loose” monetary policy - language that was similar to readouts of previous meetings, suggesting no imminent additional stimulus plans.

The spot yuan opened at 6.8362 per dollar and was last trading at 6.8373 at 0249 GMT, 1 pip lower than the previous late-session close.

Analysts at CICC said the Politburo stressed keeping the currency basically stable at a reasonable and balanced level and that they still expect some appreciation potential.

 “To avoid a clear deviation from equilibrium, monetary policy may need to stay relatively accommodative,” they said.

Ting Lu, chief China economist at Nomura, said: “As the PBOC may continue to rely on low-profile easing measures, we have decided to push out our forecasts for both a 50bp reserve requirement ratio (RRR) cut in Q2 and a 10bp rate cut in Q4 to next year.”

The yuan has largely been range-bound since mid-April as market participants stayed cautious amid escalating tensions in the Middle East. Markets are focused on the Fed’s April decision due later Wednesday - Jerome Powell’s final meeting as chair - with traders betting a hold is certain.

Before the market opened, the People’s Bank of China set the midpoint rate at 6.8608 per dollar, 261 pips weaker than a Reuters estimate.

 The offshore yuan traded at 6.8386 yuan per dollar, up about 0.03% in Asian trade.

The dollar’s six-currency index, which measures the greenback against a basket of six currencies, was 0.054% higher at 98.65.

China’s factory activity likely grew at a slower pace in April as rising cost pressures stemming from the Middle East conflict tested Beijing’s reliance on manufacturing to underpin economic growth.

China’s onshore yuan market will be closed from May 1 to 5 for the Labour Day holiday.