SHANGHAI: China’s yuan hovered near a three-week high against the dollar on Monday, underpinned by broad greenback weakness following Federal Reserve Chair Jerome Powell’s dovish pivot suggesting an imminent rate cut in the world’s largest economy.
Fed Chair Powell on Friday endorsed an imminent start to interest rate cuts, saying further cooling in the job market would be unwelcome and expressing confidence that inflation is within reach of the US central bank’s 2% target.
By 0305 GMT, the onshore yuan traded at 7.1218 per dollar, after edging up to hit a three-week high of 7.1135 in early trades.
The yuan is up 1.4% against the dollar this month, recouping nearly all its losses in the first half of the year.
Having spent all year trying to put a floor under the tumbling yuan, market watchers said China’s central bank is suddenly faced with the opposite problem and is turning to subtle ways to stop the currency from appreciating sharply.
Still, the yuan’s recent gains lagged behind its regional peers such as Indonesian rupiah and Malaysian ringgit, which both advanced about 5% against the dollar in August.
That was largely due to China’s stable yuan midpoint fixings and exporters’ unwillingness to settle their FX receipts, analysts said.
“Despite yen’s sharp rebound initially, the yuan fixing has been kept largely stable,” said Tommy Xie, head of Greater China research at OCBC Bank.
“The stability of the fixing rate suggests that the central bank is not in a hurry to leverage the situation to counter yuan short positions.”
Prior to the market 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 7.1139 per dollar, its strongest since June 13 and 7 pips weaker than a Reuters’ estimate.
Around midday, the dollar’s six-currency index was 0.010% higher at 100.67, while the offshore yuan traded at 7.1185 yuan per dollar, down about 0.05% in Asian trade.
Separately, China’s central bank rolled over maturing medium-term loans and injected cash through its liquidity instruments earlier in the session, underlining market expectations for further easing as the economy struggles to gain traction.
Markets will gauge August manufacturing data due on Saturday for more clues on the health of the economy, currency traders said.
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