(Reuters) – SHANGHAI, July 9 – The Chinese yuan bounced back on Friday from a two-and-a-half-month low hit the day before, when the Cabinet hinted at future reserve requirement reduction for banks, but it was still on track for its sixth weekly loss.
The main driver on Friday was widespread weakness in the US dollar, which fell from a three-month high against a basket of currencies as investors worried that the spread of COVID variations would stifle global economic recovery.
These concerns have fueled demand for safe haven currencies like the Japanese yen and Swiss franc.
The People’s Bank of China (PBOC) set the midpoint rate at 6.4755 per dollar, down 50 basis points (0.08 percent) from the previous fix of 6.4705.
The onshore yuan rebounded from a two-and-a-half-month low of 6.4913 per dollar on Thursday in the spot market. At lunchtime, it was trading at 6.4836, 74 pips higher than the previous late session close.
If the yuan closes the late night session at the noon level, it will have lost 0.18 percent against the dollar this week, marking the sixth consecutive week of losses.
The general trend of the yuan should continue to track the dollar’s moves, according to a trader at a Chinese bank, although recent cabinet talk of RRR cutbacks sparked market concerns about China’s economic fundamentals.
According to another trader at a Chinese bank, lowering the RRR would add more liquidity to the financial system, which would theoretically weigh on the yuan.
Late Wednesday, China’s State Council, or cabinet, announced that the country would employ timely reductions in the bank’s RRR to help the actual economy, particularly small businesses.
The projected RRR cutbacks, according to Louis Kuijs, head of Asia economics at Oxford Economics, should not signal a larger shift toward monetary policy relaxation.
“New COVID-19-related regulations and supply chain delays were mostly to blame for the current economic slump…
In such conditions, monetary easing will be ineffective, and the downward pressures should only be temporary “he wrote in a note
“In fact, we don’t believe the projection for H2 deserves a much easier monetary stance,” Kuijs said, adding that he expects economic momentum to pick up in the second half of the year, with full-year GDP growth of 8.4%.
Following the cabinet’s dovish comments, the market mostly ignored China’s June inflation data, which showed a slightly slower rate of rise in factory gate prices.
The global dollar index was at 92.429 by lunchtime, while the offshore yuan was at 6.4894 per dollar.
At 0401 GMT, the yuan market was as follows:
PBOC midpoint 6.4755 6.4705 -0.08 percent ONSHORE SPOT: Item Current Previous Change PBOC midpoint 6.4755 6.4705 -0.08 percent
6.4836 6.491 0.11 percent on the spot yuan
YTD spot change 0.69 percent, divergence from 0.13 percent midpoint*
Since 2005, there has been a spot change. Revaluation of 27.65 percent
Indexes that are important:
Item Previous Change Previous Item
98.09 98.14 -0.1 Thomson 98.09 98.14 -0.1
Dollar index 92.429 92.364 0.1 Reuters/HKEX CNH index Dollar index 92.429 92.364 0.1
*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 6.4894 -0.09% * Offshore 6.6487 -2.61 percent non-deliverable forwards ** Offshore 6.6487 -2.61 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; Simon Cameron-Moore edited the piece.)/n
