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SHANGHAI — China’s yuan inched higher
against the dollar on Thursday, helped by Federal Reserve
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signals that it was moving towards a slower pace of interest
rate hikes as well as increased expectations of monetary easing
from China’s central bank.
China will use timely cuts in banks’ reserve requirement
ratio (RRR), alongside other monetary policy tools, to keep
liquidity reasonably ample, state media on Wednesday quoted a
cabinet meeting statement as saying.
Analysts at Goldman Sachs said they saw the meeting as a
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response to increased pressures on the economy as COVID cases
rise and that they expect the central bank to deliver an RRR cut
in the next few days.
“Despite these supportive measures, we continue to forecast
weak activity growth in the rest of the year and the first half
of next year,” they said in a client note, adding that they
expect China will begin to re-open its economy from the second
quarter of next year.
China on Wednesday reported its highest number of daily
COVID-19 cases since the start of the pandemic began nearly
three years ago, official data showed.
Prior to market opening, the People’s Bank of China (PBOC)
set the midpoint rate at 7.1201 per U.S. dollar, 80
pips firmer than the previous fix of 7.1281.
In the spot market, onshore yuan opened at 7.1480
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per dollar and was changing hands at 7.1401 at midday, 179 pips
firmer than the previous late session close.
While traders and analysts said the cabinet’s statement all
but cemented a near-term RRR cut, markets were rather anxious
about its potential size.
“The question is whether it will be a 25-basis-point or 50
bp cut … A 25 bp cut will offer better flexibility in monetary
policy and less disruption in FX outflow pressure,” Stephen
Innes, managing partner at SPI Asset Management, said via email.
“It would also align with the last RRR cut of 25bp in
April.”
The PBOC’s decision in August to lower key interest rates is
widely believed to have acted as a catalyst in acccelerating
the yuan’s decline. The move widened the gap in monetary policy
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direction with the United States and other major economies which
have aggressively hiked rates to tame inflation.
In global markets, the dollar was broadly weaker as
investors placed bets on riskier assets following the release of
the Fed policy meeting minutes that signaled a slower pace of
hikes was in the offing.
Around midday, the global dollar index was trading at
105.779, down from its previous close of 106.076, while the
offshore yuan was trading at 7.1442 per dollar.
The yuan market at 0300 GMT:
ONSHORE SPOT:
Item Current Previous Change
PBOC midpoint 7.1201 7.1281 0.11%
Spot yuan 7.1401 7.158 0.25%
Divergence from 0.28%
midpoint*
Spot change YTD -11.00%
Spot change since 2005 15.92%
revaluation
Key indexes:
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Item Current Previous Change
Thomson 0.0
Reuters/HKEX
CNH index
Dollar index 105.779 106.076 -0.3
*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 7.1442 -0.06%
*
Offshore 6.9495 2.45%
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 Edwina
Gibbs)