Yuan Inches Up, Market Awaits Policy Guidance At Home And Abroad

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China’s yuan inched up against
the dollar on Thursday, although trade was thin as market
participants awaited global policy indications for clues on
which way the currency was likely to head.
“The market was yet to figure out a clear direction,” said a
trader at a Chinese bank, adding many investors were waiting for
the next catalyst.
Particular focus is on U.S. jobs data, comments from the
Federal Reserve on possible timing of tapering at the annual
Jackson Hole policy symposium later this month or China’s policy
stance at its monthly benchmark lending rate fixing on Aug. 20.
The onshore yuan opened at 6.4671 per dollar and
was changing hands at 6.4640 at midday, 26 pips firmer than the
previous late session close.
Several currency traders said both corporate clients and
banks’ proprietary accounts were unwilling to make huge bets on
either side of the yuan on Thursday.
Onshore spot yuan swung in an extremely thin range of about
40 pips and half-day volume shrank to $10.67
billion from about $15 billion on normal days.
Marco Sun, chief financial markets analyst at MUFG Bank,
said he expected the yuan to trade in a range from 6.45 to 6.48
per dollar this week, with options pricing suggesting a “sticky”
range between 6.45 and 6.46 per dollar.
Traders also said sentiment was upheld by continued capital
inflows into China’s bond market with official data showing
foreign investors’ holdings of Chinese government bonds (CGBs)
hitting a record high in July.
“CGBs provide diversification benefits, while there was also
the RRR cut in the month which had supported the bond market
sentiment,” strategists at OCBC Bank said in a note.
“Real yield differentials over USTs stay near the upper-end
of 5-year ranges, which shall sustain foreign demand barring
unexpected volatility in the RMB. Yields, however, are unlikely
to fall further meaningfully.”
In the wake of torrential rains and flooding and
authorities’ tough response to outbreaks of the
highly-transmissible coronavirus Delta variant, many economists
said China may need more monetary and fiscal easing to halt an
economic slowdown.
Monetary easing and higher liquidity should theoretically
pile downside pressure on the currency in the short-term, but
improving economic fundamentals would support the yuan over the
long-run, traders said.
A Reuters poll conducted this week showed investors turned
bearish on the yuan for the first time since April as China’s
regulatory crackdown on private sector firms sent jitters
through markets.
Prior to market opening, the People’s Bank of China set the
midpoint rate at 6.4691 per dollar, 36 pips or 0.06%
weaker than the previous fix of 6.4655.
In global markets, the dollar was poised to push higher on
Thursday as hawkish Fed comments led markets to bring forward
the expected timing of a policy tightening.
By midday, the dollar index rose to 92.305 from the
previous close of 92.281, while the offshore yuan was
trading at 6.4619 per dollar.

– Reuters

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