SHANGHAI: China’s currency eased against the US dollar on Wednesday, with tight offshore yuan liquidity failing to offset weak sentiment toward China’s stock market.
The cheer of possible measures to bolster China’s stock market did not last long. Most stocks traded in the onshore market fell and foreign capital logged a net selling via Stock Connect by midday, dampening yuan sentiment.
Meanwhile, offshore yuan tomorrow-next forwards stayed as high as 3.2 on Wednesday, reflecting tight liquidity in the offshore market.
The still-elevated offshore yuan implied tomorrow-next level together with the recent open market operation pattern offers some clues on China’s policy stance, which is to slow down currency depreciation even if it makes short-term funding more expensive, UBS analysts said in a note.
Prior to the market’s opening, the People’s Bank of China (PBOC) set the midpoint rate around which the yuan is allowed to trade in a 2% band, at 7.1053 per US dollar, 64 pips firmer than the previous fix 7.1117, and nearly 800 pips stronger than Reuters’ estimate.
The recent yuan reference rates suggest yuan stability is still important to PBOC and rate cuts may only come when the US Federal Reserve is more ready to cut so that the yuan is not weakened too much by the policy divergence, Maybank analysts said in a note.
China’s trade-weighted CFETS yuan basket index rose to 98.97 on Wednesday, the highest level since Dec. 7, 2023, according to Reuters calculation based on official data.
Yuan rebounds after reports on possible support
China only publishes the CFETS index on a weekly and monthly basis.
The spot yuan opened at 7.1669 per dollar and was changing hands at 7.1752 at midday, 42 pips weaker than the previous late session close.
The global dollar index fell to 103.477 from the previous close of 103.617.
The offshore yuan was trading only 11 pips weaker than the onshore spot at 7.1763 per dollar.
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