China’s yuan eases ahead of Fed decision; volume shrinks
SHANGHAI — China’s yuan eased against
the dollar on Wednesday, with market participants cautious ahead
a Federal Reserve policy meeting and largely shrugging off
strong upward adjustment of central bank guidance for the
currency’s trading midpoint.
Meanwhile, the fast spread of COVID-19 infections had also
dented sentiment, traders said.
The dollar/yuan rate “remains trapped by opposing forces of
concerns over the current COVID wave and news of further easing
of restrictions,” analysts at Maybank said in a note.
Prior to market opening, the People’s Bank of China (PBOC)
set the midpoint rate at a new three-month high of
6.9535 per dollar, 211 pips or 0.3% firmer than the previous fix
In the spot market, the onshore yuan opened at
6.9480 per dollar and was changing hands at 6.9618 at midday,
118 pips softer than the previous late session close.
Trading was tepid in morning deals, with volume
of $9.1 billion around midday, compared with a
normal half-day volume of about $15 billion.
Cautious trading ahead of the closely watched Fed decision
due later in the session was among the key factors dampening
trading, which usually drop towards the year-end holiday
seasons, several currency traders said.
“Working from home in A-B teams due to recent spikes in
COVID-19 infections has affected work efficiency,” said a trader
at a foreign bank.
Some of them also said regulators had offered support for
After delivering four consecutive 75-basis-point hikes, the
U.S. central bank is widely expected to increase interest rates
by 50 basis points as it concludes its two-day meeting on
“Interest rate differentials still favor USD …. But we
believe that (Chinese) exporters are more likely to convert
their USD into CNY because their historical behavior suggests
that they will buy CNY when it is strong and vice versa,”
analysts at Morgan Stanley said in a note.
The bank expects the Fed’s rate-hiking cycle to end in
January 2023 and projects another 3% of yuan appreciation
against the dollar next year.
Chinese companies usually have higher demand for the local
currency for various payment needs in the run-up to the year-end
and Lunar New Year holidays.
By midday, the global dollar index had risen to
104.08 from the previous close of 103.98, while the offshore
yuan was trading at 6.9676 per dollar.
The yuan market at 0335 GMT:
Item Current Previous Change
PBOC midpoint 6.9535 6.9746 0.30%
Spot yuan 6.9618 6.95 -0.17%
Divergence from 0.12%
Spot change YTD -8.72%
Spot change since 2005 18.88%
Item Current Previous Change
Dollar index 104.08 103.98 0.1
*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
OFFSHORE CNH MARKET
Instrument Current Difference
Offshore spot yuan 6.9676 -0.08%
Offshore 6.805 2.18%
*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)
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