Yuan eases on stronger dollar as China lines up more stimulus

(Fixes word in first paragraph)
HONG KONG, Jan 16 (Reuters) - China's yuan softened on
Wednesday in response to a stronger dollar overnight, giving
back some of its gains made in the previous session after
policymakers pledged more support for the cooling Chinese
economy.
The yuan appeared little fazed by news that the central bank
had made a record injection into money markets in its daily
operations, seeking to avoid a cash crunch heading into long
holidays that could put further strains on banks and
borrowers.
With tax payments peaking, "the banking system's overall
liquidity is falling rapidly", The People's Bank of China (PBOC)
said in a statement explaining the move.
While sizable injections are common ahead of the long Lunar
New Year holidays, which fall in early February this year, the
addition was much heftier than usual and follows two large cuts
in banks' reserve ratios this month.
That added to views that the world's second-largest economy
is going to need a steady stream of support if a sharper
slowdown is to be averted.
But traders said the yuan's moves on Wednesday were largely
driven by the dollar. The global dollar index shot above
96.2, its highest point in more than a week on the back of
Europe's weakness and fresh uncertainty over Brexit.

It moderated to 96.004 in Asia morning trade, down slightly
from the previous close of 96.039.
The spot yuan was changing hands at 6.7696 per
dollar at midday, 86 pips weaker than the previous late session
close and 0.12 percent weaker than the midpoint, after opening
at 6.7700.
Prior to the open, the People's Bank of China set the
midpoint rate at 6.7615, weaker than the previous fix
of 6.7542.
Carie Li, a Hong Kong-based economist at OCBC Wing Hang,
said the yuan’s fall was likely to be limited, noting many
companies "who had dollars through the New Year have come back
to buy the renminbi” after the Chinese currency rallied last
week.
If there are no major domestic policy developments,
investors may return their focus to the Sino-U.S. trade war in
the coming sessions, said a trader with a foreign bank in
Shanghai.
Ken Cheung, senior Asian FX strategist at Mizuho in Hong
Kong, cautioned against chasing the yuan rally on the back of
trade talk progress.
He noted that such good news fell short of supporting the
yuan through 6.7 last week, indicating that better trade
relations “may not be enough to sustain the renminbi rally, it
is hard to see it going back to 6.3, 6.4” per dollar, and regain
ground lost from early 2018.
United States Trade Representative Robert Lighthizer did
not see any progress made on structural issues during U.S. talks
with China last week, Republican U.S. Senator Chuck Grassley
said on Tuesday as plans emerged for higher-level discussions at
the end of January.
The offshore yuan was trading 0.08 percent softer
than the onshore spot at 6.7750 per dollar.
The Thomson Reuters/HKEX Global CNH index, which
tracks the offshore yuan against a basket of currencies on a
daily basis, stood at 94.41, slightly weaker than the previous
day's 94.47.

The yuan market at 4:00AM GMT:

ONSHORE SPOT:
Item Current Previous Change
PBOC midpoint 6.7615 6.7542 -0.11%

Spot yuan 6.7696 6.761 -0.13%

Divergence from 0.12%
midpoint*
Spot change YTD 1.53%
Spot change since 2005 22.26%
revaluation

Key indexes:

Item Current Previous Change

Thomson 94.41 94.47 -0.06
Reuters/HKEX
CNH index
Dollar index 96.004 96.039 -0.035

*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 percent from official midpoint rate it sets each
morning.

OFFSHORE CNH MARKET

Instrument Current Difference
from onshore
Offshore spot yuan 6.7750 -0.08%
*
Offshore 6.7935 -0.47%
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 Noah Sin; Editing by Andrew Galbraith & Kim
Coghill)


First Published: 2019-01-16 07:37:37
Updated 2019-01-16 07:44:13


© 2019 Thomson Reuters. All rights reserved. Reuters content is the intellectual property of Thomson Reuters or its third party content providers. Any copying, republication or redistribution of Reuters content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters. Thomson Reuters shall not be liable for any errors or delays in content, or for any actions taken in reliance thereon. "Reuters" and the Reuters Logo are trademarks of Thomson Reuters and its affiliated companies.