(Reuters) – SHANGHAI, July 15 – On Thursday, China’s yuan edged higher against the dollar, reflecting some dollar weakness in global markets, but gains were limited by somewhat weaker-than-expected second-quarter GDP figures.
Slowing manufacturing output, increasing raw material costs, and fresh COVID-19 outbreaks slowed China’s economy in the second quarter, making the rebound less robust than predicted.
“The cyclical comeback from the epidemic has crested, according to China’s Q2 GDP. The future momentum will be more balanced, with a return to more structural causes “Gary Ng, Natixis’ Asia-Pacific economist in Hong Kong, agreed.
The People’s Bank of China (PBOC) set the midpoint rate at 6.464 per dollar, a more than one-week high, 166 basis points (0.26%) higher than the previous fix of 6.4806.
Onshore yuan opened at 6.4620 per dollar in the spot market, rising to a high of 6.4602 before settling at 6.4658 at lunchtime, 32 pips higher than the previous late session close.
The yuan gained from a drop in the dollar in early trade, according to traders, as US Federal Reserve Chair Jerome Powell reaffirmed that he was not in a hurry to tighten policy.
Some currency traders said markets needed more evidence to determine if the latest decrease in the reserve requirement ratio (RRR) for Chinese banks was fine-tuning monetary policy or the start of a more broad-based easing cycle to support the economy.
On the same day that a decrease in the banks’ RRR took effect, the PBOC partially rolled over maturing medium-term loans while keeping interest rates unchanged.
In a note, Wang Ju, senior FX strategist at HSBC in Hong Kong, wrote, “By now, the market is likely to read China’s RRR drop as a hawkish cut.”
“We believe the direction of divergent monetary policy between China and the United States is apparent, which should lead to a comeback in USD/RMB (yuan) going towards year-end,” she added, predicting the yuan would decline to 6.6 per dollar by year’s end.
Despite the MLF rate remaining unchanged on Thursday, China’s unexpected RRR decrease has fueled speculation of more monetary easing to support the economy. According to some market observers, a decrease in the country’s benchmark loan prime rate is on the way, maybe as soon as next week.
The global dollar index was at 92.423 by lunchtime, while the offshore yuan was at 6.4668 per dollar.
At 0400 GMT, the yuan market was as follows:
PBOC midpoint 6.464 6.4806 0.26 percent ONSHORE SPOT: Item Current Previous Change PBOC midpoint 6.464 6.4806 0.26 percent
6.4658 6.469 0.05 percent Chinese yuan spot
Spot change YTD 0.97 percent, divergence from 0.03 percent midpoint*
Since 2005, there has been a spot change. Revaluation of 28.00 percent
Indexes that are important:
Item Previous Change Previous Item
98.34 98.36 0.0 98.34 98.36 0.0 98.34 98.36
Dollar index 92.423 92.399 0.0 Reuters/HKEX CNH index Dollar index 92.423 92.399 0.0
*The exchange rate between the US dollar and the Chinese yuan has diverged. If the figure is negative, it means the spot yuan is trading higher than the midpoint.
The People’s Bank of China (PBOC) allows the official midpoint rate, which it sets each morning, to climb or fall by 2%.
CNH MARKET OFFSHORE
Instrument Current Distinction from the Onshore
Offshore spot yuan 6.4668 -0.02 percent * Offshore 6.645 -2.72 percent non-deliverable forwards ** Offshore 6.645 -2.72 percent non-deliverable futures
*Premium for an offshore location over an onshore location **
Since non-deliverable forwards are settled against the midpoint, the figure indicates the discrepancy from the PBOC’s official midpoint.
(Winni Zhou and Andrew Galbraith contributed reporting, and Lincoln Feast edited the piece.)/n
