China’s yuan firms on dollar weakness after Powell testimony

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SHANGHAI — China’s yuan inched up on

Wednesday as the dollar slipped against riskier currencies after

the head of the Federal Reserve reiterated the U.S. central

bank’s accommodative monetary policy stance, fueling optimism

about the global economic recovery.

The People’s Bank of China set the midpoint rate

at 6.4615 per dollar prior to market open, 99 pips weaker than

the previous fix of 6.4516.

The spot market opened at 6.4535 per dollar and

was changing hands at 6.4614 at midday, 26 pips firmer than the

previous late session close.

The offshore yuan was trading at 6.4614 per dollar.

Traders said the onshore yuan would continue to trade in a

range between 6.45 per dollar and 6.5 per dollar.

“Chances are low for any big moves in the yuan now, as there

is a lack of direction in the dollar for the short term,” said a

trader at Chinese bank.

The dollar slipped to a three-year low against the British

pound and nursed losses against commodities currencies on

Wednesday as investors increased bets that a global economic

recovery will boost riskier assets.

U.S. Federal Reserve Chair Jerome Powell reiterated on

Tuesday that interest rates will remain low and the Fed will

keep buying bonds to support the U.S. economy, which many

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traders say is negative for the dollar in the long-term.

Some analysts said the yuan would face headwinds given

changes in the China-U.S. bond yield spread.

Bruce Yam, a forex strategist at Everbright Sung Hun Kai,

noted the interest rate spread between China and the United

States was narrowing as U.S. treasury yields rose, which could

pressure the yuan.

Market participants largely looked past the latest headlines

on Sino-U.S. relations.

On Tuesday, U.S. President Joe Biden and Canadian Prime

Minister Justin Trudeau pledged to work together to counteract

Chinese influence.

Wally Adeyemo, Biden’s nominee as deputy Treasury secretary,

said that same day that Washington should work with allies to

hold China accountable to international rules to ensure a level

playing field for companies in the United States and elsewhere.

The Thomson Reuters/HKEX Global CNH index, which

tracks the offshore yuan against a basket of currencies on a

daily basis, stood at 96.07, firmer than the previous day’s

96.01.

The global dollar index fell to 90.082 from the

previous close of 90.117.

Offshore one-year non-deliverable forwards contracts

(NDFs), considered the best available proxy for

forward-looking market expectations of the yuan’s value, traded

at 6.6364, 2.64% away from the midpoint.

One-year NDFs are settled against the midpoint, not the spot

rate.

The yuan market at 3:33AM GMT:

ONSHORE SPOT:

Item Current Previous Change

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PBOC midpoint 6.4615 6.4516 -0.15%

Spot yuan 6.4614 6.464 0.04%

Divergence from 0.00%

midpoint*

Spot change YTD 1.04%

Spot change since 2005 28.09%

revaluation

Key indexes:

Item Current Previous Change

Thomson 96.07 96.01 0.1

Reuters/HKEX

CNH index

Dollar index 90.082 90.117 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 6.4615 0.00%

*

Offshore 6.6364 -2.64%

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 Luoyan Liu, Han Xiao and Andrew Galbraith;

Editing by Ana Nicolaci da Costa)

In-depth reporting on the innovation economy from The Logic, brought to you in partnership with the Financial Post.

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