(Reuters) – SHANGHAI, July 8 – The yuan fell on Thursday as the dollar rose to its highest levels in three months and China’s cabinet suggested that banks’ reserve requirements could be reduced to assist economic growth.
While the cabinet stated that China’s monetary policy will remain unchanged, investors interpreted mention of RRR cutbacks – the obligatory reserves that banks must lay aside – as a significant easing signal ahead of next week’s June GDP data, which is expected to reflect a further softening of momentum.
The yuan’s pessimistic tone was heightened by the policy statements.
The benchmark Chinese 10-year yield plummeted to its lowest level since August, as Chinese government bond futures jumped.
In a note, Ken Cheung, chief Asian FX strategist at Mizuho Bank, said, “The PBOC’s dovish turn may suggest (at) slowing growth momentum for China’s economy in the rest of this year.”
By midday, the yuan had lost almost 0.1 percent against the dollar, with the greenback boosted by the Federal Reserve’s June policy meeting minutes, which revealed that the Fed could start tapering asset purchases as early as this year.
The minutes suggest that some attendees at the Fed meeting thought requirements for curtailing bond buying would be “met somewhat earlier than they had anticipated,” while others saw a less clear signal from incoming data.
The People’s Bank of China set the yuan’s daily midpoint rate at 6.4705 per dollar before the market opened, slightly higher than the previous fix of 6.4762.
The spot yuan began at 6.4762 per dollar and was trading at 6.4783 at midday, 71 pips lower than the late session close on Wednesday.
The offshore yuan fell to 6.4841 per dollar from 6.4753 at the previous closing, although the Thomson Reuters/HKEX Global CNH index, which measures the offshore yuan against a basket of currencies on a daily basis, remained constant at 98.24.
Expectations of easing in China and tightening in the United States pulled 10-year sovereign yield gaps between the two nations closer on Thursday, after they had widened to a four-month peak earlier this week.
The global dollar index increased to 92.752 from 92.714 at the previous close.
“We continue to expect the US dollar to strengthen in the near term, but the yuan remains rangebound generally,” a foreign bank trader said.
At 4:00 a.m. GMT, the yuan market looked like this:
ITEM CURRENT PREVIOUS CHANGE PBOC MIDPOINT ONSHORE SPOT 6.4705 6.4762 0.09 percent 6.4705 6.4762 0.09 percent
6.4783 yuan 6.4712 yuan -0.11 percent Spot yuan 6.4783 yuan 6.4712 -0.11 percent
Spot change YTD 0.77 percent, divergence from 0.12% midpoint*
Since 2005, there has been a spot change. Revaluation of 27.76 percent
Indexes that are important:
Item Previous Change Previous Item
98.24 0.0 98.24 0.0 98.24 0.0 98.24 0.0 98.24
Dollar index 92.752 92.714 0.0 Reuters/HKEX CNH index Dollar index 92.752 92.714 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 6.4841 -0.09% * Offshore 6.6513 -2.72 percent non-deliverable forwards ** Offshore 6.6513 -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.
(Andrew Galbraith in Shanghai and Xiao Han in Beijing contributed reporting; Kim Coghill edited the piece.)/n
Read More
