Yuan hovers at 5-month high ahead of US CPI; FX demand for tourism may pick up
SHANGHAI — China’s yuan hovered at a
five-month high against the dollar on Thursday, as investors
awaited U.S. inflation data later in the session for more clues
on the monetary policy outlook in the world’s largest economy.
Yuan trades since the start of this year were on an upward
trend, shrugging off dollar movement in global markets,
supported by border reopening optimism and seasonal heavy
demand, currency traders said. But with sentiment gradually
stabilizing, the greenback and the pace of U.S. tightening will
again become key factors.
“Uncertainty around the U.S. tightening trajectory is still
high,” said a trader at a Chinese bank.
Markets expect that the Federal Reserve may be nearing the
end of its aggressive monetary policy tightening campaign and
that it may not have to raise rates as high as previously
Prior to market opening, the People’s Bank of China (PBOC)
set the midpoint rate at 6.7680 per dollar, 76 pips
or 0.11% firmer than the previous fix of 6.7756.
The onshore yuan opened at 6.7590 per dollar and
was changing hands at 6.7580 at midday, 70 pips firmer than the
previous late session close. It was not far from a near
five-month high of 6.7510 hit on Tuesday.
The yuan has gained 2.1% against the dollar so far this
year, reversing some of the losses it booked in 2022, which
amounted to the biggest annual loss in 28 years.
Currency traders said the sudden fast yuan appreciation
might have come to an end as markets have largely digested the
reopening optimism, while heavy seasonal conversions of export
proceeds ahead of the Lunar New Year would ebb soon.
China’s week-long Lunar New Year holiday starts on Jan. 21.
“Although the yuan strength continued, we don’t think it
will be smooth sailing,” analysts at OCBC Wing Hang Bank said in
“Domestic service trade deficit has room to grow, while the
goods trade surplus may shrink as imports rebound,” they added,
targeting the yuan at 6.75 per dollar by the end of this year.
Some banks also told their clients that the short-term yuan
depreciation pressure may quickly emerge again as companies
gradually head for the Lunar New Year holidays and their foreign
exchange settlements greatly decline.
“And in the meantime, FX purchases against the backdrop of
resumed outbound tourism will increase,” said a second trader at
a Chinese bank.
Such currency demand surrounding outbound tourism
contributed to a huge portion of the service trade deficit
before the pandemic.
The yuan market at 0350 GMT:
Item Current Previous Change
PBOC midpoint 6.768 6.7756 0.11%
Spot yuan 6.758 6.765 0.10%
Divergence from -0.15%
Spot change YTD 2.10%
Spot change since 2005 22.47%
Item Current Previous Change
Dollar index 103.098 103.188 -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 6.7663 -0.12%
Offshore 6.6203 2.23%
*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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