SHANGHAI, March 18 (Reuters) –China’s yuan inched lower against the dollar on Monday, as investors were cautious ahead of a busy week of overseas central bank monetary policy meetings that could lead to some volatility in currency markets.
The Bank of Japan is seemingly on the brink of ending negative rates on Tuesday, while the market is also focused on the Federal Reserve’s rate outlook due on Wednesday.
Other central banks in Britain, Australia, Norway, Switzerland, Mexico, Brazil and Indonesia are due to meet, with most expected to stand pat on rates. FRX/
Prior to the market opening, the People’s Bank of China (PBOC) set the midpoint rate CNY=PBOC, around which the yuan is allowed to trade in a 2% band, at 7.0943 per dollar, 32 pips firmer than the previous fix of 7.0975.
Despite the stronger guidance fix, the central bank continued its months-long practice of setting the rate at levels firmer than market projections, widely viewed by traders as an attempt to keep the currency stable.
Monday’s midpoint was 1,052 pips firmer than a Reuters estimate of 7.1995.
“Policymakers are still very keen on maintaining FX stability – the countercyclical factors in the daily yuan fixing remained deeply negative in recent weeks, showing policymakers’ strengthening bias despite the depreciation pressures on the yuan due to unfavorable interest rate spreads,” analysts at Goldman Sachs said in a note.
In the spot market, the onshore yuan CNY=CFXS opened at 7.1940 per dollar and was changing hands at 7.1973 at midday, 8 pips weaker than the previous late session close.
“The key focus remained as the Fed outcome this week,” said a trader at a foreign bank.
The market had little reaction to better-than-expected Chinese economic activity indicators released on Monday. Factory output and retail sales beat expectations in the January-February period, marking a solid start for 2024 and offering some relief to policymakers even as weakness in the property sector remains a drag on the economy and confidence.
By midday, the global dollar index .DXY fell to 103.421 from the previous close of 103.432, while the offshore yuan CNH=D3 was trading at 7.2032 per dollar.
The yuan market at 0343 GMT:
ONSHORE SPOT:
|
Item |
Current |
Previous |
Change |
|
PBOC midpoint CNY=SAEC |
7.0943 |
7.0975 |
0.05% |
|
Spot yuan CNY=CFXS |
7.1973 |
7.1965 |
-0.01% |
|
Divergence from midpoint* |
1.45% |
||
|
Spot change YTD |
-1.38% |
||
|
Spot change since 2005 revaluation |
14.99% |
||
Key indexes:
|
Item |
Current |
Previous |
Change |
|
Thomson Reuters/HKEX CNH index |
0.0 |
||
|
Dollar index |
103.421 |
103.432 |
0.0 |
*Divergence of the dollar/yuan exchange rate. Negative number indicates that spot yuan is trading stronger than the midpoint. The People’s Bank of China (PBOC) allows the exchange rate to rise or fall 2% from official midpoint rate it sets each morning.
OFFSHORE CNH MARKET
|
Instrument |
Current |
Difference from onshore |
|
Offshore spot yuan CNH= * |
7.2032 |
-0.08% |
|
Offshore non-deliverable forwards CNY1YNDFOR= ** |
6.991 |
1.48% |
*Premium for offshore spot over onshore CNY=CFXS
**Figure reflects difference from PBOC’s official midpoint, since non-deliverable forwards are settled against the midpoint. CNY=SAEC.
Reporting by Shanghai Newsroom; Editing by Jamie Freed