The yuan eased on Monday,
pressured by seasonal corporate dollar demand and with sentiment
dented by China’s potential plans to allow more capital
China will study the feasibility of allowing individuals to
invest in securities and insurance products abroad, Ye Haisheng,
the head of capital account management department at the State
Administration of Foreign Exchange (SAFE), wrote in a
state-owned publication published late on Friday. The amount
will be within an annual quota of $50,000 per person.
Although the timeline for the plan is unclear, traders and
analysts said the move suggests the authorities have become
increasingly uncomfortable with the yuan’s strength and growing
concerns about bubble risk in some domestic markets.
In the spot market, onshore yuan opened at 6.4585
per dollar and was changing hands at 6.4625 at midday, 27 pips
weaker than the previous late session close, in spite of a
firmer midpoint fixing.
The People’s Bank of China (PBOC) set the midpoint
at 6.4563 per dollar, 61 pips firmer than previously.
Tommy Xie, head of Greater China research at OCBC Bank, said
in a note the USD/CNY remained elevated above 6.45 this morning
despite a retreat in the broadly stronger dollar.
“We think this concern is likely to be short-lived and the
pressure for the pair to trend down remains unchanged.”
Several traders said corporate dollar demand had picked up
recently as manufacturing and business resumed after the
week-long Lunar New Year holiday.
A trader at a Chinese bank said the market was wary of the
global reflation trade against the backdrop of rising long-term
U.S. Treasury yields, which could be a headwind for the yuan.
But its losses were capped by latest developments in
Sino-U.S. relations, after senior Chinese diplomat Wang Yi said
on Monday the United States and China could work together on
issues such as climate change and the coronavirus pandemic if
they repaired their damaged bilateral relationship.
Meanwhile, there was little reaction to China keeping its
benchmark lending rate for corporate and household loans steady
for the 10th straight month at its February fixing on Saturday,
matching market expectations.