The yuan retraced some losses by midday after being weighed down by a rally in the U.S. dollar on stronger-than-expected nonfarm payrolls data, which surged to 517,000 jobs and suggested the Federal Reserve could stay hawkish for longer.
"Strong U.S. data implies that the U.S. economy can still withstand further rate hikes. Prior to the nonfarm data release, the market was initially expecting the first interest rate cut to come in the third quarter," said Christopher Wong, FX strategist at OCBC Bank. "But now that expectation has been pushed back to December." The People's Bank of China set the midpoint rate at 6.7737 per U.S. dollar prior to market open, the weakest fixing in more than three weeks and softer than the previous fix of 6.7382. Soon after, onshore yuan slipped further to 6.8077, a four-week low after opening at 6.8055 per dollar. It was changing hands at 6.7810 by midday, 192 pips stronger than the previous late session close. The spot rate is currently allowed to trade with a range 2% above or below the official fixing on any given day. The global dollar index rose to 103.072 from the previous close of 102.915.
After the Federal Reserve raised its benchmark rates by 25 basis points to 4.5%-4.75% last week, the market is expecting another quarter percentage point hike in March. Heightened geopolitical risks could also cap further upside in the yuan. Over the weekend, U.S. Secretary of State Anthony Blinken postponed his visit to Beijing in a sign of a potential re-escalation of tensions between the United States and China after the U.S. military shot down a suspected surveillance balloon from China. China protested the response as an "obvious overreaction" "The risk of U.S.-China tensions rising alongside the U.S. dollar rebound momentum on the back of solid economic data could temporarily lend support to USD in the near term," Wong said.
Offshore yuan was trading 0.15% weaker than the onshore spot at 6.7911 per dollar.
The one-year forward value for the offshore yuan traded at 6.6412 per dollar, indicating a roughly 2.26% appreciation within 12 months. The yuan market at 0324 GMT:
ONSHORE SPOT: Item Current Previous Change PBOC midpoint -0.52% 6.7737 6.7382
Spot yuan 0.28%
6.781 6.8002
Divergence from
midpoint*
0.11%
Spot change YTD
1.75%
Spot change since 2005
revaluation 22.05%
OFFSHORE CNH MARKET
Instrument Current Difference
from onshore
Offshore spot yuan
* -0.15%
6.7911
Offshore
non-deliverable 1.71%
forwards 6.6595
**
*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 Georgina Lee; Editing by Jacqueline Wong)
