SHANGHAI, Feb 23 (Reuters) - China's yuan hovered at a
seven-week low against a firmer dollar on Thursday, under
downward pressure from expectations that the Federal Reserve is
likely to stay on its aggressive monetary tightening trajectory.
Policymakers at the U.S. central bank indicated that curbing
unacceptably high inflation would be the "key factor" in how
much further rates needed to rise, according to minutes from the
latest Fed policy meeting.
Before the market opening, the People's Bank of China (PBOC) set the midpoint fixing of the yuan at 6.9028 per
dollar, 269 pips or 0.39% weaker than the previous fix of
6.8759, the softest since Jan. 4. Thursday's official fixing
came in line with market forecasts.
In the spot market, the onshore yuan opened at
6.8950 per dollar and was changing hands at 6.8860 at midday, 40
pips firmer than previous late session close.
"If the onshore spot yuan breaches the psychologically
important 6.9 per dollar on Thursday, the next key supportive
level would be 6.95," said a trader at a Chinese bank, adding
that some of his peers were betting the yuan could soon test the
7 per dollar mark if weakness persisted.
Some analysts and market participants believe a breach of 7
yuan per dollar could trigger strong expectations of
depreciation and raise a risk of capital outflow.
The market is looking towards the annual parliamentary
gathering while also awaiting economic data for January and
February to gauge the health of the economy and the key goals
for this year.
January-February data, including imports and exports, will
be released in March. January data will be released only in
aggregation with February data, because the Lunar New Year
holiday shifts between the two months from year to year.
"China reopening optimism appears to be softening as
investors are awaiting the economic data releases for first two
months as well as the fresh policy guidance at the National
People Congress (NPC) in March," said Ken Cheung, chief Asian FX
strategist at Mizuho Bank.
A sharp jump in short-term Chinese bond yields in response
to a swift dropping of pandemic curbs may be premature, analysts
say, pointing to the central bank's policy intent and its
attempts to douse speculation of early tightening.
"We expect one more rate cut and one more reserve
requirement ratio (RRR) cut," economists at JPMorgan said in a
note. An interest rate cut, possibly in April, could be
justified by benign inflation and a probably low growth in
first-quarter gross domestic product, they said.
The PBOC most recently cut interest rates in August and the
RRR in December.
At midday, the global dollar index stood at 104.413,
while the offshore yuan was trading at 6.8904 per
dollar.
The one-year forward value for the offshore yuan traded at 6.7179 per dollar, implying a 2.57% appreciation
within 12 months.
The yuan market at 0250 GMT:
ONSHORE SPOT:
Item Current Previous Change
PBOC midpoint 6.9028 6.8759 -0.39% Spot yuan 6.886 6.89 0.06% Divergence from -0.24%
midpoint*
Spot change YTD 0.20%
Spot change since 2005 20.19%
revaluation
Key indexes:
Item Current Previous Change
Dollar index 104.413 104.585 -0.2
*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 6.8904 -0.06%
*
Offshore 6.7193 2.73%
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 Brenda Goh)
Messaging: winni.zhou.thomsonreuters.com@reuters.net))
