(Reuters) – SHANGHAI, June 29 – On Tuesday, China’s yuan weakened versus the dollar, while trading remained in a narrow range as many investors sat on the sidelines, waiting for critical U.S. economic data to provide hints on the Federal Reserve’s policy stance.
Markets were also kept in control by ongoing plans to commemorate the Chinese Communist Party’s 100th anniversary on July 1, dealers said, noting that domestic financial markets are normally stable before and during major economic and political events.
The People’s Bank of China (PBOC) fixed the midpoint rate at a one-week high of 6.4567 per dollar before the market opened on Tuesday, 11 pips higher than the previous fix of 6.4578.
Onshore yuan began at 6.4583 per dollar in the spot market and was trading at 6.4609 at lunchtime, down 47 pips from the previous late session finish.
While the Fed’s policy outlook may be influenced by Friday’s eagerly watched US jobs report, many observers expect China’s central bank will continue to prioritize monetary policy stability, providing some assurance to local financial markets.
Since the Fed surprised traders by adopting a hawkish policy stance earlier this month, global markets have been on edge.
As authorities strive to cement a post-COVID-19 economic recovery, the PBOC said on Monday that it will make its monetary policy flexible, targeted, and appropriate while keeping interbank liquidity reasonable.
Analysts at Guotai Junan Securities noted in a note that official comments suggested that “policymakers’ negative expectations for the domestic economy have escalated dramatically.”
“The PBOC vowed to minimize foreign shocks, and we believe that one of the PBOC’s important objectives in H2 would be protecting financial stability in China markets and filtering the spillovers of major central banks’ policy shifts,” said Ken Cheung, chief Asian FX strategist at Mizuho Bank in Hong Kong.
The global dollar index gained to 91.961 by midday, up from 91.867 at the previous closing, while the offshore yuan was trading at 6.4622 per dollar.
At 0402 GMT, the yuan market was as follows:
ITEM CURRENT PREVIOUS CHANGE PBOC MIDPOINT ONSHORE SPOT 6.4567 0.02 percent 6.4578 0.02 percent
6.4609 6.4562 -0.07 percent spot yuan
Spot change YTD 1.04 percent, divergence from 0.07 percent midpoint*
Since 2005, there has been a spot change. Revaluation of 28.10 percent
Indexes that are important:
Item Previous Change Previous Item
97.84 97.78 0.1 97.84 97.78 0.1 97.84 97.78
Dollar index 91.961 91.867 0.1 Reuters/HKEX CNH index Dollar index 91.961 91.867 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 6.4622 -0.02 percent * Offshore 6.6277 -2.58 percent non-deliverable forwards ** Offshore 6.6277 -2.58 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; Shri Navaratnam edited the piece.)
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