Consumer inflation did pick up last month, helped by the country's reopening and pent-up demand. Still, factory gate prices reflected by the producer price index (PPI) fell more than economists expected, down 0.8% year-on-year. Such a drop was unexpected after earlier data showed economic activity had returned to growth in January. "Taken together, the inflation environment remains benign enough for the People's Bank of China to ease monetary policy conditions a tad more to give the economy much-needed support," said analysts at Maybank in a research note on Friday.
Spot yuan opened at 6.7880 per dollar and was changing hands at 6.7996 at midday, 146 pips weaker than the previous late session close and 0.16% away from the midpoint. It looked set to end the week little changed, though it has gained around 1.7% so far this year on economic recovery hopes and a generally softer U.S. dollar. The People's Bank of China set the midpoint rate at 6.7884 per U.S. dollar prior to market open, firmer than the previous fix 6.7905. The spot rate is currently allowed to trade with a range 2% above or below the official fixing on any given day. China is expected to release January credit data in coming days. Analysts polled by Reuters expect bank loans likely surged to a record high in January as the central bank moved to shore up growth and set the stage for a solid recovery. Some analysts also are expecting more RRR cuts from the PBOC this year. The PBOC bank last cut its reserve requirement ratio (RRR), or the amount that cash that banks must hold as reserves, by 25 basis point to 7.8% in December.
"Trading will likely remain range bound early next week as the market is awaiting U.S. CPI data due on February 14, which will inform the Federal Reserve on whether it needs to continue with interest rate hike beyond March," said Kirk Wong, global market and FX strategist at Everbright Securities International.
The market is expecting another quarter percentage point hike in the U.S. in March after the Fed raised its benchmark rates by 25 basis points to 4.5%-4.75% last week. The global dollar index rose to 103.348 from the previous close of 103.221.
The offshore yuan was trading -0.12% away from the onshore spot at 6.8079 per dollar.
The one-year forward value for the offshore yuan traded at 6.6442 per dollar, indicating a roughly 2.46% appreciation within 12 months. The yuan market at 3:31AM GMT:
ONSHORE SPOT: Item Current Previous Change PBOC midpoint 0.03% 6.7884 6.7905
Spot yuan 6.785 -0.21%
6.7996
Divergence from
midpoint*
0.16%
Spot change YTD
1.48%
Spot change since 2005
revaluation 21.72%
OFFSHORE CNH MARKET
Instrument Current Difference
from onshore
Offshore spot yuan
* -0.12%
6.8079
Offshore
non-deliverable 2.08%
forwards 6.6501
**
*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 Kim Coghill)
