SHANGHAI: China’s yuan eased slightly against the dollar on Tuesday but found support above levels seen as red lines for authorities, while caution ahead of upcoming global central bank meetings also kept losses in check.
Central banks, including the US Federal Reserve, the Bank of England and the Bank of Japan, are scheduled to hold a policy-setting meeting later this week, which could inject fresh volatility into foreign exchange markets if they produce surprise.
Before the market open, the People’s Bank of China (PBOC) set the mid-rate, around which the yuan is allowed to trade in a band of 2%, at a one-month high of 7.1733 per US dollar, 3 points higher strong than the previous Adjustment of 7.1736.
The PBOC’s months-long trend of setting official policy guidance tighter than expected is widely seen by markets as an attempt by policymakers to stem the yuan’s rapid declines. Tuesday’s official fix was 1.106 points stronger than the Reuters estimate of 7.2839.
In the spot market, the onshore yuan opened at 7.2850 per dollar and was changing hands at 7.2935 at midday, 15 pips softer than the previous late session’s close.
Currency traders said their corporate clients appeared to have higher demand for dollars, which put pressure on the local currency, but they noted that investors turned cautious as the yuan weakened towards the psychologically important 7.3 per dollar. .
“Recent comments made by state media also indicated that the authorities are keen to control the yuan’s devaluation,” said a trader at a Chinese bank.
The downward pressure on the Chinese yuan against the US dollar is temporary, the Economic Daily, a newspaper run by China’s State Council, said on Tuesday, noting that its value against the currencies of major trading partners was stable.
“We continue to monitor whether early signs of improving data and the PBOC warning can further translate into more meaningful pullbacks in USD/CNH,” Christopher Wong, FX strategist at OCBC Bank, said in a note.
“For the RMB to fundamentally stabilize and recover, it would still require China’s economic activities to pick up, confidence to ‘repair’ and the USD to weaken.”
Markets will closely monitor China’s monthly key lending rate (LPR) fix due on Wednesday.
Most new and outstanding loans in China are based on the one-year LPR, while the five-year rate affects mortgage pricing.
At midday, the global dollar index fell to 105.14 from a previous close of 105.202, while the offshore yuan traded at 7.2985 per dollar.
