Chinese yuan weakens as c.bank wins softer eighth consecutive auction

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    SHANGHAI, June 24 (Reuters) - China's yuan weakened on
Thursday after the country's central bank fixed its daily
midpoint weaker for an eighth consecutive session, and as the
dollar stalled after taking support from Fed official comments
over persistent inflationary pressures.
    "In the near term, the dollar lacks direction. We still need
to watch U.S. Federal Reserve officials' comments and U.S.
data," said a trader at a foreign bank, noting that increasing
Fed hawkishness could prompt the dollar to continue rising. 
    Suggestions from two Fed officials that a period of high
inflation in the United States may last longer than anticipated
lifted the greenback on Wednesday.
    Before the market open, the People's Bank of China (PBOC)
set the yuan's daily midpoint rate at 6.4824 per
dollar, its weakest since May 6. It was the eighth consecutive
softer fixing, the longest such streak since August 2019 - a
time of sharp escalation in the Sino-U.S. trade war.
    Spot yuan opened at 6.4790 per dollar and was
changing hands at 6.4804 at midday, 56 pips softer than
Wednesday's late session close.
    The offshore yuan softened to 6.4822 per dollar,
from a close of 6.4780, even as offshore borrowing rates jumped
ahead of the end of the first half.
    Qi Gao, Asia FX strategist at Scotiabank in Singapore, said
Thursday's softer fixing reflected policymakers' intention to
stabilise market expectations and prevent one-way speculation.
    A rapid strengthening of the yuan, which took it to more
than three-year highs in late May, prompted a string of official
warnings about one-sided bets on yuan strength. Since June 15,
the PBOC has also required financial institutions to hold more
foreign exchange in reserve in a bid to temper the yuan's
upside.
    The combination of official warnings and regulatory tweaks,
along with projections from the U.S. Federal Reserve of an
earlier-than-expected exit from extraordinary pandemic-era
policies have combined to push the yuan down nearly 2% from its
peak against the dollar on May 31.
    With overall inflation benign and given its desire to avoid
a stronger yuan, the PBOC continues to fine-tune its liquidity
management, said Ken Cheung, chief Asian FX strategist at Mizuho
Bank. 
    On Thursday, the bank conducted a 30 billion yuan liquidity
injection through seven-day reverse repurchase agreements, the
first time since late February that it has not conducted a 10
billion yuan daily injection. The move pushed interbank rates
lower, but did not indicate a change in policy, Cheung said.
    "Taking account into (the) PBOC's warnings on
(yuan)depreciation risk previously, the Fed's hawkish shift
should be largely in line with the PBOC's predictions and we do
not expect the PBOC to make a dramatic policy shift accordingly
in the near term." 

    The yuan market at 4:25AM GMT: 
    
    ONSHORE SPOT:
 Item               Current  Previous  Change
 PBOC midpoint      6.4824   6.4621    -0.31%
                                       
 Spot yuan          6.4804   6.4748    -0.09%
                                       
 Divergence from    -0.03%             
 midpoint*                             
 Spot change YTD                       0.74%
 Spot change since 2005                27.72%
 revaluation                           
 
    Key indexes:
     
 Item            Current     Previous  Change
                                       
 Thomson         97.65       97.57     0.1
 Reuters/HKEX                          
 CNH index                             
 Dollar index    91.832      91.799    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    6.4822    -0.03%
        *                        
 Offshore              6.6502    -2.52%
 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; Editing by Lincoln Feast)
  

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