Chinese yuan eases ahead of bumper week for global central banks

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SHANGHAI: The Chinese yuan eased against the greenback on Monday and traded on the weaker side of the psychologically critical 7 to the dollar level, under pressure from the Reserve’s widely anticipated interest rate hike Federal on the weekend.

Ahead of the market open, the People’s Bank of China (PBOC) pegged the midpoint rate at 6.9396 per dollar, 91 pips or 0.13% lower than the previous fix of 6.9305 on Friday.

However, official forecasts are firmer than market projections, traders and analysts said, continuing a trend in place since late August in what market participants read as an attempt to slow the yuan’s slide.

“The strong fixing bias could also be an attempt to offset pressure from the open market operation (OMO) net injection into the yuan,” Maybank analysts said in a note.

The PBOC on Monday injected a net amount of 12 billion yuan ($1.71 billion) through short-term liquidity tools to counter higher cash demand at the end of the quarter, while reducing the cost borrowing from 14-day repurchase agreements.

Higher liquidity injections and lower interest rates should naturally put pressure on the currency, analysts said.

In the spot market, the onshore yuan opened at 6.9900 per dollar and was changing hands at 7.0080 by midday, 375 pips lower than the previous late-trading close.

Its offshore counterpart was trading at 7.0128 to the dollar around noon.

Currency traders said the yuan remained under pressure ahead of a series of global central bank meetings this week, where the Fed and Bank of England are expected to raise rates further.

China, along with Japan, has been a major exception in a global series of interest rate hikes to rein in inflation as Beijing focuses on reviving the economy hit by COVID-19 shocks. But such a growing political divergence weighed on the yuan.

“Unlike the last round of RMB depreciation, the collapse in RMB futures points makes the RMB short easy to hold due to positive carry,” OCBC Bank analysts said in a note.

“This will make China’s countercyclical measures less effective in stopping RMB depreciation than they did before.”

One-year dollar/yuan swap points traded on the futures market hovered at -1,395 points on Monday, their lowest level in 12 years.

Instead, state media prepared to warn the market of strong one-way bets against the local currency, with traders and analysts seeing them as part of official attempts to rein in excessive yuan weakness.

Wang Chunying, a spokesperson for the State Administration of Foreign Exchange (SAFE), was quoted by state broadcaster CCTV on Friday as urging companies not to speculate on the currency.

And CCTV also quoted unnamed sources close to the central bank as saying the yuan would remain basically stable.

The yuan market at 04:01 GMT:

SPOT ON LAND:

Article Current Previous Edit

PBOC Midpoint 6.9396 6.9305 -0.13%

Spot Yuan 7.008 6.9705 -0.54%

0.99% divergence

environment*

One-off change since the start of the year -9.32%

One-time change since 2005 18.10%

revaluation

Key indexes:

Article Current Previous Edit

Thomson 0.0

Reuters/HKEX

CNH Index

Dollar index 109.836 109.764 0.1

*Divergence of the dollar/yuan exchange rate. A negative number indicates that the spot yuan is trading stronger than the midpoint. The People’s Bank of China (PBOC) allows the exchange rate to rise or fall by 2% from the official midpoint rate it sets each morning.

CNH OFFSHORE MARKET

Instrument current difference

earthen

Offshore Spot Yuan * 7.0128 -0.07%

Offshore 6.9185 0.30%

not available

attackers **

*Premium for offshore spot on onshore

** Figure reflects difference from official PBOC midpoint, as undeliverable forwards are set relative to midpoint.

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