The lower official guidance, the softest since Dec. 30 and the biggest one-day weakening in percentage terms since May, pressured the spot market.
The onshore yuan opened at 6.9590 per dollar and weakened to 6.9734 by midday, 104 pips softer than the previous late session close, and the weakest level since Dec. 29, 2022. Currency traders said the market is now eyeing the psychologically critical 7 per dollar level as the next target, with the risk that a breach of the mark could stoke expectations of sharp yuan depreciation as well as capital outflows. "In near term, we see USD/CNY continue to track the dollar's (movements), with geopolitical tensions keeping volatility high as there was no sign of cooling China-U.S. tensions," said Lin Li, head of global markets research for Asia at MUFG Bank. Investors will also closely monitor the February manufacturing data due on Wednesday for more clues on the pace of China's economic recovery since Beijing reopened its borders and ditched its rigorous anti-COVID rules in December.
Some currency traders said they will shift their attention to the upcoming annual parliamentary gatherings for key growth targets for this year. "We expect the meeting to set the GDP growth target at 'around 5%' with supportive macro policies ... Restoring confidence, innovation, and self-reliance in supply chain will be the key policy focus," said Wang Tao, head of Asia economic research at UBS. Wang expects a reduction to banks' reserve requirement ratio (RRR) and a marginal cut to the lending benchmark loan prime rate (LPR), but ruled out a policy rate cut. Separately, the central bank reiterated in its quarterly monetary policy implementation report that it will focus on supporting domestic demand and stabilising economic growth. By midday, the global dollar index rose to 105.253 from the previous close of 105.214, while the offshore yuan was trading at 6.9866 per dollar.
The one-year forward value for the offshore yuan traded at 6.8082 per dollar, implying a 2.62% appreciation within 12 months.
The yuan market at 0347 GMT:
ONSHORE SPOT:
Item Current Previous Change
PBOC midpoint 6.9572 6.8942 -0.91% Spot yuan 6.9734 6.963 -0.15% Divergence from 0.23%
midpoint*
Spot change YTD -1.05%
Spot change since 2005 18.69%
revaluation
Key indexes:
Item Current Previous Change
Dollar index 105.253 105.214 0.0
*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 6.9866 -0.19%
*
Offshore 6.8175 2.05%
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
Editing by Shri Navaratnam)
