Yuan Inches Lower Against Dollar Amidst Awaited U.S. Inflation Report
In Shanghai, China’s yuan demonstrated a slight dip against the dollar on Tuesday, as investors anticipated a pivotal U.S. inflation report alongside a series of domestic economic indicators, poised to shed light on the monetary policy trajectories of the world’s leading economies.
The widening interest rate disparities between the United States and China, coupled with policy differentials, have prominently contributed to the strengthening of the U.S. dollar while concurrently exerting downward pressure on the Chinese yuan in recent times.
Although the Chinese yuan has shown signs of stability this week, it remains precariously close to a 4-1/2 month nadir of 7.2364 reached on April 3. This is despite the central bank’s concerted efforts to bolster its daily benchmark settings. Year-to-date, the currency has depreciated by approximately 1.9% against the dollar.
Ahead of the market’s commencement, the People’s Bank of China (PBOC) established the midpoint rate, pivotal for yuan trading within a 2% band, at 7.0956 per dollar, marginally weaker by 9 pips compared to the preceding fix of 7.0947. However, it notably exceeded a Reuters estimate of 7.2248 by 1,292 pips.
Chang Wei Liang, FX & credit strategist at DBS, observed, “RMB has been stable, with USD/CNH holding around 7.25 for the last two weeks,” highlighting the PBOC’s persistent efforts in setting robust USD/CNY fixings around 7.09. Liang also noted U.S. Treasury Secretary Janet Yellen’s recent visit to China, characterized by amicable discussions alongside raised concerns regarding China’s surplus capacity and its implications for global producers.
In the spot market, the onshore yuan commenced trading at 7.2307 per dollar and stood at 7.2342 by midday, reflecting a 37-pip decline from the previous late session close.
A trader at a foreign bank emphasized, “Markets will closely gauge the upcoming economic data,” referring to the impending release of China’s inflation, trade, and credit lending figures later in the week, along with the forthcoming first-quarter gross domestic product (GDP) data and activity indicators.
Moreover, some currency traders highlighted that the yuan’s downturn was curtailed by liquidity constraints in Hong Kong, where the offshore yuan overnight HIBOR surged to a two-year peak of 6.31955% on Tuesday. Elevated offshore yuan funding costs render it costlier for certain investors to engage in yuan shorting activities.
By midday, the global dollar index ascended to 104.168 from the preceding close of 104.14, with the offshore yuan trading at 7.2448 per dollar.
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