SHANGHAI: China’s yuan held steady against the US dollar, after the country cut its benchmark lending rates as expected, while market participants expected yuan strength to be capped in the near term as they await US election results.
China cut its one- and five-year loan prime rates (LPRs) by 25 basis points each, as anticipated at the monthly fixing on Monday.
Meanwhile, the US dollar came off from an over two-month high last week but the dollar index was still steady, hovering near 103.4 on Monday.
“It’s difficult to see a major USD drop due to the fast approaching US election,” said Alvin Tan, head of Asia FX strategy at RBC Capital Markets.
Tan said in the past week, Southeast Asian currencies have outperformed Northeast Asian currencies from a combination of China stimulus disappointment, South Korea equity outflows, and renewed inflows into Southeast Asia bonds. He thinks this broad picture can persist in the near-term.
With just about two weeks to go before the US election, bets that a Donald Trump victory are on rise in some financial instruments. “We could be in for a period of consolidation, awaiting the outcome of the US elections on Nov. 5,” said Maybank analysts, referring to the dollar-yuan pair.
The yuan is down 1.2% against the dollar this month, erasing gains in late September, and is roughly flat this year.
China’s yuan firmer against dollar
China’s third quarter GDP results and some September activity data came in better-than-expected, but traders and analysts still need to see clearer policy road map to revive the economy.
The National People’s Congress (NPC) Standing Committee session is the next window to watch.
The spot yuan opened at 7.1049 per dollar and was last trading 9 pips firmer than the previous late session close and 0.05% weaker than the midpoint.
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 7.0982 per dollar.
The offshore yuan traded at 7.1129 yuan per dollar, up about 0.09% in Asian trade.
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