Chinese Yuan Holds Steady After Strong Midpoint Fix, Little Impact From Rate Cut

SHANGHAI, Jan 20 (Reuters) – The Chinese yuan held steady against the dollar on Thursday on continued seasonal business demand and a well-strengthened official midpoint, with only a moderate impact from cuts in the country’s benchmark lending rates .

Ahead of the market open, the People’s Bank of China (PBOC) raised the midpoint to 6.3485 per dollar, 139 pips higher than the previous fix of 6.3624 and the highest since May 2018.

The official forecast was largely in line with online market projections – just 3 pips lower than Reuters’ estimate – in contrast to the huge deviations seen in recent weeks.

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Official central bank pricing has been consistently lower than market expectations since mid-November, which markets interpreted as a sign that the PBOC was growing increasingly uncomfortable with the rapid gains in the market. yuan.

Traders said a rise past the psychologically important parameter of 6.35 to the dollar also suggested the central bank was refraining from imposing further weakening bias through its midpoint. Last year, authorities introduced measures to curb excess yuan gains when the yuan crosses this level.

In the spot market, the onshore yuan opened at 6.3450 per dollar and was changing hands at 6.3435 by midday, 12 pips higher than the previous late session close.

Traders said growing market expectations of a growing currency divergence between China and the United States are unlikely to affect the strong yuan ahead of the long Lunar New Year holiday, which begins Jan. 31, as businesses need to convert their foreign exchange receipts into Chinese. currency regardless of exchange losses.

Companies usually have to make payments such as bonuses to employees before the most important festival of the year in China.

Meanwhile, Beijing stepped up its monetary easing efforts to support a slowing economy this week by lowering a series of policy rates on Thursday and cutting a benchmark mortgage rate for the first time in nearly two years. The market is ready for more moves before growth collapses. Read more

An easing bias has increased pressure on the yield premium between the world’s two largest economies, with the Federal Reserve expected to raise interest rates as early as March.

“The Fed’s faster and faster tightening cycle will crowd out the PBOC’s leeway for easing later this year, and the RMB will be subject to depreciation risk,” said Ken Cheung, chief strategist. Asian currencies at Mizuho Bank.

Cheung expects the PBOC to step up its easing measures in the first half of the year, with more rate cuts and a reduction in the reserve requirement ratio for banks in the first quarter.

By noon, the World Dollar Index (.DXY) had risen to 95.544 from the previous close of 95.51, while the offshore yuan traded at 6.3479 to the dollar.

The yuan market at 04:01 GMT:

SPOT ON LAND:

Key indexes:

*Divergence of the dollar/yuan exchange rate. A negative number indicates that the spot yuan is trading stronger than the midpoint. The People’s Bank of China (PBOC) allows the exchange rate to rise or fall by 2% from the official midpoint rate it sets each morning.

CNH OFFSHORE MARKET

*Premium for offshore spot on onshore

**The figure reflects the difference from the official PBOC midpoint, as non-deliverable futures are settled relative to the midpoint. .

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Reporting by Winni Zhou and Andrew Galbraith; edited by Richard Pullin

Our standards: The Thomson Reuters Trust Principles.

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