China’s yuan slips, but seen resilient on economic outlook

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SHANGHAI — China’s yuan softened

slightly on Wednesday, in spite of firmer central bank guidance,

as market participants awaited the outcome of the U.S. Federal

Reserve’s policy meeting.

The People’s Bank of China set the midpoint rate

at 6.4853 per dollar prior to market open, 71 pips firmer than

the previous fix of 6.4924 and the strongest such guidance since

March 12.

The spot market opened at 6.4880 per dollar and

was changing hands at 6.4868 at midday, 38 pips weaker than the

previous late session close.

The offshore yuan was trading at 6.4827 per dollar.

The dollar, which gained against its peers for a third day,

is set to take its cues from the Federal Reserve’s policy

statement and a speech by President Joe Biden on Wednesday. It

seeks to extend a recovery from an eight-week low touched

earlier in the week against a basket of currencies.

Traders said the yuan remained rangebound as the dollar

index traded mainly below the 91 level ahead of the Fed

meeting, and the possibility could not be ruled out that the

dollar index continues to slide after the meeting.

“The recent yuan rebound was mainly due to the weakness in

the dollar index,” said a trader at a foreign bank. “I believe

the dollar index would remain weak, giving the yuan appreciation

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room.”

Investors will be scrutinizing the Fed’s comments at the

close of its policy meeting later on Wednesday, for insight into

its thinking on inflation, bond purchases and risks to the

financial system posed by soaring asset prices.

CIB Research said in a report the yuan would maintain

strength given the global resurgence of the coronavirus.

The resilience of the Chinese economy will also bolster the

yuan. China’s economic rebound from a pandemic-induced slump is

forecast to be the strongest this year, the Asian Development

Bank said on Wednesday. The economy was forecast to grow 8.1%,

driven by strong domestic demand and exports, before moderating

to 5.5% in 2022.

The Thomson Reuters/HKEX Global CNH index, which

tracks the offshore yuan against a basket of currencies on a

daily basis, stood at 96.72, firmer than 96.68 previously.

The global dollar index rose to 90.995 from the

previous close of 90.897.

Offshore one-year non-deliverable forwards contracts

(NDFs), considered the best available proxy for

forward-looking market expectations of the yuan’s value, traded

at 6.6533, 2.53% away from the midpoint.

The yuan market at 3:39AM GMT:

ONSHORE SPOT:

Item Current Previous Change

PBOC midpoint 6.4853 6.4924 0.11%

Spot yuan 6.4868 6.483 -0.06%

Divergence from 0.02%

midpoint*

Spot change YTD 0.64%

Spot change since 2005 27.59%

revaluation

Key indexes:

Item Current Previous Change

Thomson 96.72 96.68 0.0

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Reuters/HKEX

CNH index

Dollar index 90.995 90.897 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 6.4827 0.06%

*

Offshore 6.6533 -2.53%

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 Luoyan Liu, Jindong Zhang and Josh Horwitz;

Editing by Jacqueline Wong)