SHANGHAI: China’s yuan firmed against the dollar on Wednesday, as offshore liquidity remains tight and investors awaited key US inflation data for clues on the direction of Federal Reserve interest rates.
The US August consumer price index (CPI) is due on Wednesday and any downside surprise is likely to make the yuan stronger against the dollar.
Prior to the market’s opening, the People’s Bank of China set the midpoint rate at 7.1894 per US dollar, 92 pips firmer than the previous fix of 7.1986 and 889 pips firmer than Reuters’ estimate.
The midpoint guidance was again set with a strong bias and slightly firmer than market expected.
The spot yuan opened at 7.2877 per dollar and was changing hands at 7.2823 at midday, 88 pips firmer from the previous late session close.
The offshore yuan was trading 62 pips weaker than the onshore spot at 7.2885 per dollar.
Offshore yuan funding conditions have turned more volatile over the past 24 hours, said Alvin Tan, head of Asia FX strategy at RBC Capital Markets.
“Whatever the drivers, it will continue to dissuade speculators from shorting the offshore yuan,” Tan said.
China’s central bank is set to ramp up bill sales again in Hong Kong next week, according to an official announcement on Wednesday, with market participants interpreting it as a sign that authorities are keen to stabilise a weakening yuan.
“Whether this bearish (dollar-yuan) reversal can pan out requires evidence of sustained economic recovery and that is unlikely in the near-term,” said Maybank analysts.
They anticipate only a gradual strengthening of the offshore yuan against the dollar with next support at 7.2430 unlikely to be breached easily.
The global dollar index fell to 104.675 from the previous close of 104.711.