Yuan off 6-week high, investors await global cenbank policy signals

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SHANGHAI — China’s yuan eased on Friday

from a six-week high reached a day earlier but still looked set

for a winning week, as investors awaited monetary policy

comments from global central banks.

U.S. Federal Reserve Chairman Jerome Powell is expected to

call for the continuation of easy monetary policy, when the

central bank meets next week. That would put downward pressure

on Treasury yields and cap the dollar’s gains against most

currencies.

On Thursday, European Central Bank President Christine

Lagarde messaged that talk of tapering was premature.

Prior to market opening, the People’s Bank of China (PBOC)

set the midpoint rate weaker at 6.4934 per dollar,

snapping eight straight days of strengthening.

In the spot market, onshore yuan opened at 6.4920

per dollar and was changing hands at 6.4970 at midday, 58 pips

weaker than the previous late session close. It hit a high of

6.4820 on Thursday, the strongest since March 12.

But if the yuan finishes the late night session at the

midday level, it would have booked its third straight weekly

gain.

The Chinese currency swung in a very tight range just above

the psychologically important 6.5 per dollar level on Friday

morning, with investors awaiting clearer policy signals from

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major central banks.

Several traders said the yuan continued to track the

dollar’s movements, and sharp moves in the greenback from shifts

in U.S. policy could spark volatility in the Chinese currency.

A trader at a local bank said domestic factors could soon

weigh on the yuan as Chinese companies listed abroad start to

make FX purchases for their interim dividend payments. Such

seasonal FX demand, which usually takes place between May and

August, could pile downside pressure on the yuan.

“We estimate that China’s outbound dividend payments will

reach a new record this year, as more companies are now listed

outside the mainland,” Becky Liu, head of China macro strategy

at Standard Chartered, said in a note.

Liu expected total dividend payments would rise by 13% in

2021 to $84 billion.

A spokeswoman for the foreign exchange regulator said on

Friday that increased flexibility in China’s yuan exchange rate

can release market pressure and prevent expectations it will

only move one way.

The regulator also expected China to have a current account

surplus in the first quarter, though it would be smaller than

the fourth quarter last year.

China’s April manufacturing data will be another point of

focus next week for clues on the pace of economic recovery after

China reported slightly weaker-than-expected first quarter GDP.

“After a turbulent couple of weeks for Chinese markets,

investors will hope that another strong PMI print can restore

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some confidence in the health of the recovery,” analysts at ANZ

said in a note.

China’s official PMI is due for release next Friday.

The global dollar index fell to 91.213 at midday from

the previous close of 91.287, while the offshore yuan

was trading at 6.4964 per dollar.

The yuan market at 0400 GMT:

ONSHORE SPOT:

Item Current Previous Change

PBOC midpoint 6.4934 6.4902 -0.05%

Spot yuan 6.497 6.4912 -0.09%

Divergence from 0.06%

midpoint*

Spot change YTD 0.48%

Spot change since 2005 27.39%

revaluation

Key indexes:

Item Current Previous Change

Thomson 96.71 96.79 -0.1

Reuters/HKEX

CNH index

Dollar index 91.213 91.287 -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 6.4964 0.01%

*

Offshore 6.6658 -2.59%

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

Jacqueline Wong)