Stronger midpoint lifts China's yuan ahead of US inflation data

SHANGHAI: China's yuan firmed on Tuesday after the central bank set a stronger midpoint for the currency's daily trading band and as the dollar remained subdued after slightly weaker-than-expected payrolls data last week.

With the yuan closely tracking moves in the dollar index, investors await US consumer price data on Thursday for more clues as to the direction of Federal Reserve policy.

"The yuan will likely remain rangebound in the near term. The effect of dollar buying for dividend payments may not be as clear as expected," said a trader at a foreign bank, adding that he was also monitoring developments in US-China relations.

US President Joe Biden's order last week banning US investment in certain Chinese companies is broader than a similar one signed by his predecessor Donald Trump and has a lower bar, making it easier to add more companies later.

Before the market open, the People's Bank of China (PBOC) set the yuan's daily midpoint at 6.3909 per dollar, firmer than the previous fix of 6.3963.

Spot yuan opened at 6.3907 per dollar and trimmed its advance to change hands at 6.3919 at midday, 45 pips stronger than Monday's late session close.

While the yuan stayed on the stronger side of the psychologically important 6.4 per dollar level, analysts said expectations for strong appreciation had eased after a raft of official warnings against one-way bets on the currency. The PBOC also raised the reserve requirement ratio on foreign exchange deposits for the first time in 14 years last week.

The offshore yuan was slightly weaker, trading at 6.3894 per dollar from a close of 6.3851 on Monday, as the global dollar index rose to 90.069 from the previous close of 89.988.

"The central bank's actions were proven to be effective to suppress one-way RMB appreciation bias," said Ken Cheung, chief Asian FX strategist at Mizuho Bank in Hong Kong.

"The softer China exports figure justified (the) PBOC's concern over the negative impact of broad RMB strength on China exports. The release of China CPI and PPI figures...will show the effect of RMB appreciation on curbing the imported inflation."

Surging demand for raw materials lifted growth in China's imports to its fastest pace in 10 years in May, although export growth slowed more than expected as COVID-19 cases disrupted major ports.

China is due to release consumer and producer price index figures for May on Wednesday.