Views Article – Sharenet Wealth

Asia, Forex

China yuan weakens on softer fixing

SHANGHAI, April 8 (Reuters) – China’s yuan edged lower against the U.S. dollar on Thursday on a weaker central bank fixing, but remained near a multi-year high against a basket of other currencies. Minutes of the U.S. Federal Reserve’s March policy meeting provided few catalysts to the market. Fed officials remained cautious about the risks posed by the COVID-19 pandemic to the U.S. economy, despite the boost from massive fiscal stimulus, and expects to keep supporting the economy “for some time,” the minutes showed Wednesday. Before the open, the People’s Bank of China set the yuan’s daily midpoint at 6.5463 per dollar, weaker than the previous fix of 6.5384. After opening at 6.5500 per dollar, spot yuan firmed slightly to 6.5470 by midday, but was still 35 pips weaker than Wednesday’s late session close. The offshore yuan softened to 6.5506 per dollar from 6.5494 on Wednesday. “The yuan is likely to fluctuate in a small range in the near term. There’s no strong logic for it to break out,” said a trader at a Chinese bank. “(But) a round of appreciation may be brewing if this sideways trend is prolonged.” The dollar index barely budged on Wednesday after the minutes’ release, falling to 92.39 from a close of 92.414. Prospects for a rapid U.S. recovery have boosted the dollar and U.S. yields this year. That has weighed on the yuan, which dipped nearly 2.4% between late January and late March. A weaker yuan and shrinking premiums over U.S. debt drove foreign investors to reduce their holdings of Chinse sovereign debt in March, the first monthly drop in more than two years. But while the yuan has weakened against the U.S. dollar, it has retained strength against other currencies. The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 96.58, just half a percent off a 33-month high touched on March 24. China’s CFETS trade-weighted yuan basket has gained about 2% this year, according to Reuters’ calculations based on official data “CFETS is close to near-term highs and it will be important to see if it can break past the 2018 highs, and that shall set the tone for next leg of renminbi, in our view,” analysts at Citi said in a note. The yuan market at 4:00AM GMT: ONSHORE SPOT: Item Current Previous Change PBOC midpoint 6.5463 6.5384 -0.12% Spot yuan 6.547 6.5435 -0.05% Divergence from 0.01% midpoint* Spot change YTD -0.29% Spot change since 2005 26.42% revaluation Key indexes: Item Current Previous Change Thomson 96.58 96.61 0.0 Reuters/HKEX CNH index Dollar index 92.39 92.414 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 6.5506 -0.05% * Offshore 6.7294 -2.72% 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 Andrew Galbraith; Additional reporting by Xiao Han in Beijing; Editing by Kim Coghill)

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