SHANGHAI: China’s yuan edged higher on Tuesday from a one-month low against the dollar hit a day earlier, supported by signs of de-escalation in Sino-US tensions.
Currency traders said market sentiment improved as both Beijing and Washington appeared to show willingness to de-escalate after US President Joe Biden said on Monday that bilateral relations had not been weakened by the United States’ downing of a suspected Chinese spy balloon over the weekend.
“China seems to be keen on easing tensions but any escalation from the US side would weigh on the yuan and weaken regional currencies,” analysts at Maybank said in a note. “We keep a glass half-full view on this incident.”
Before the market opening, the People’s Bank of China (PBOC) set the midpoint rate at a fresh one-month low of 6.7967 per dollar, 230 pips or 0.34% weaker than the previous fix of 6.7737.
In the spot market, the onshore yuan bounced from a near one-month low of 6.8077 per dollar a day earlier and was changing hands at 6.7818 at midday, 170 pips firmer than the previous late-session close.
Traders said signs of easing in Sino-US tensions supported the yuan in morning deals, while their corporate clients’ interest in taking advantage of recent dollar strength and converting their FX receipts also underpinned the local currency.
In global markets, the dollar hovered near a one-month peak as traders raised their forecasts of US Federal Reserve interest rate levels needed to tame inflation, as a stubbornly resilient labour market remains largely immune to aggressive rate hikes.
China’s yuan firms after hitting 4-week low, strong US data caps gains
Investors will quickly shift their attention to Fed Chair Jerome Powell’s speech later in the session for more clues on monetary tightening trajectory following last week’s US economic data.
By midday, the global dollar index stood at 103.454, while the offshore yuan was trading at 6.7862 per dollar.
The one-year forward value for the offshore yuan traded at 6.6353 per dollar, indicating a roughly 2.27% appreciation within 12 months.
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