SHANGHAI, July 12 (Reuters) - China's yuan rebounded from a
2-1/2-month low against the dollar on Monday as the market
awaited second-quarter growth data for more clues on policy
direction, after the central bank cut reserve requirements to
prop up the economy.
The yuan had softened to its weakest level since late April
on Friday after the People's Bank of China (PBOC) cut the amount
of cash that banks must hold as reserves, releasing around 1
trillion yuan ($6.48 trillion) in long-term liquidity to
underpin a post-COVID economic recovery that is starting to lose
momentum.
While the move was flagged a few days earlier, the size of
the cut was larger than expected, raising some concerns ahead of
the release of June activity data and Q2 gross domestic product
(GDP) figures on Thursday. However, most analysts did not think
the cut in itself signalled a shift to an easier policy stance.
"Last week's cut in the RRR suggests the economy is slowing
more than desired and so there are downside risks to this week's
real sector data," Win Thin, global head of currency strategy at
Brown Brothers Harriman, said in a note.
"We also suspect the PBOC will tolerate a weaker yuan, which
would be a natural by-product of its easing stance."
Prior to the market opening, the PBOC set the midpoint rate
at a more than two-week low of 6.4785 per dollar, 30
pips weaker than the previous fix of 6.4755.
Traders and analysts said Monday's midpoint fixing came in
much weaker than their forecasts, and it was 46 pips weaker than
Reuters' estimate of 6.4739 per dollar.
However, the spot yuan didn't follow the weakening trend.
The onshore yuan opened at 6.4760 per dollar and was
changing hands at 6.4743 at midday, 48 pips stronger than the
previous late session close.
Ken Cheung, chief Asian FX strategist at Mizuho Bank, said
instead of gauging impact on the market from higher liquidity
against the backdrop of the RRR cut, markets should pay more
attention to this week's data as evidence for the health of the
broader economy.
"If the upcoming China hard data for June and Q2 GDP
justified PBOC's concern, a re-pricing of China growth slowing
towards its annual target at around 6% will likely push the RMB
to above the 6.5 handle," Cheung said.
"Such case could open the door for PBOC's further easing and
pose downside pressure on the RMB."
Though China's decision to pump more liquidity into the
financial system has dragged bond yields lower, many traders
said its interest rate advantage over most major economies
persisted and should continue to attract foreign capital
inflows, supporting the yuan.
The yield gap between China's 10-year government bonds
and their U.S. counterpart stood at 163
basis points on Monday morning, the narrowest level since July
1, according to Refinitiv data.
China's primary interbank money rates fell while treasury
futures rose on Monday morning, following the RRR cut. The
benchmark 10-year government bond futures for September delivery
gained 0.27% by midday.
The global dollar index rose to 92.193 at midday from
the previous close of 92.147, while the offshore yuan
was trading at 6.478 per dollar.
The yuan market at 0402 GMT:
ONSHORE SPOT:
Item Current Previous Change
PBOC midpoint 6.4785 6.4755 -0.05%
Spot yuan 6.4743 6.4791 0.07%
Divergence from -0.06%
midpoint*
Spot change YTD 0.83%
Spot change since 2005 27.84%
revaluation
Key indexes:
Item Current Previous Change
Thomson 98.16 98.06 0.1
Reuters/HKEX
CNH index
Dollar index 92.193 92.147 0.1
*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 6.478 -0.06%
*
Offshore 6.6422 -2.46%
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.
.
($1 = 0.1543 Chinese yuan)
(Reporting by Winni Zhou and Andrew Galbraith; Editing by Kim
Coghill)
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