SHANGHAI, March 31 (Reuters) - China's yuan bounced from a
four-month low against the dollar on Wednesday as strong
economic data helped stabilise market sentiment, but the local
currency remained on course for its biggest monthly weakening
since August 2019.
The yuan has been under pressure recently amid a buoyant
dollar, which has benefited from rising Treasury yields and
signs of a quick U.S. economic recovery.
On the day, however, the Chinese currency got some respite
from an official survey showing activity in the nation's vast
manufacturing sector expanded at the quickest pace in three
months.
Prior to market opening, the People's Bank of China (PBOC)
set the midpoint rate at a fresh four-month low of
6.5713 per dollar, 72 pips or 0.11% weaker than the previous fix
of 6.5641.
In the spot market, the onshore yuan opened at
6.5660 per dollar and was changing hands at 6.5633 at midday, 91
pips firmer than the previous late session close. It recovered
from a low of 6.5799 hit on Tuesday, the weakest since Dec. 1,
2020.
Overall, however, if the yuan finishes the late night
session at the midday level, it would have lost about 1.5%
against the dollar in March, marking the worst monthly
performance since August 2019.
The rapid coronavirus vaccine rollout has strengthened
recovery prospects in the world's largest economy, keeping
dollar bulls in control and weighing on many other currencies
including the yuan.
Analysts at China Construction Bank said in a note that over
the longer run, "the yuan exchange rate does not have the basis
for substantial depreciation" even though weakness will likely
persist in coming months.
"The current market is digesting the factors of the U.S.
economic recovery after the epidemic," they said, expecting the
local currency to trade in a range of 6.50 to 6.63 per dollar in
April.
The upbeat economic data stoked market concern over possible
tightening, but some traders and analysts said Beijing will
likely continue to stick with its pledge of not making a U-turn
on its policy stance for the time being.
"The central bank's neutral stance on liquidity has likely
eased concerns over potential sharp tightening," said Stephen
Innes, chief global markets strategist at Axi.
"The market is now reading this open market operations
pattern as a signal that the onshore liquidity will remain
stable for some time. However as April approaches, onshore
liquidity may tighten as economic data continues to improve, tax
payment picks up and rates bond issuance rises significantly."
The PBOC has kept rolling over 10 billion yuan worth of
maturing reverse repos, resulting in zero net cash injection for
23 straight trading days, which included Wednesday - the last
trading day of the month.
The global dollar index rose to 93.405 at midday,
while the offshore yuan was trading at 6.5727 per
dollar.
The yuan market at 0400 GMT:
ONSHORE SPOT:
Item Current Previous Change
PBOC midpoint 6.5713 6.5641 -0.11%
Spot yuan 6.5633 6.5724 0.14%
Divergence from -0.12%
midpoint*
Spot change YTD -0.53%
Spot change since 2005 26.10%
revaluation
Key indexes:
Item Current Previous Change
Thomson 96.81 96.59 0.2
Reuters/HKEX
CNH index
Dollar index 93.405 93.235 0.2
*Divergence of the dollar/yuan exchange rate. Negative number
indicates that spot yuan is trading stronger than the midpoint.
The People's Bank of China (PBOC) allows the exchange rate to
rise or fall 2% from official midpoint rate it sets each
morning.
OFFSHORE CNH MARKET
Instrument Current Difference
from onshore
Offshore spot yuan 6.5727 -0.14%
*
Offshore 6.7535 -2.70%
non-deliverable
forwards
**
*Premium for offshore spot over onshore
**Figure reflects difference from PBOC's official midpoint,
since non-deliverable forwards are settled against the midpoint.
.
(Reporting by Winni Zhou and Andrew Galbraith
Editing by Shri Navaratnam)
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