SHANGHAI: China’s yuan eased to a more than one-week low against the dollar on Monday, as investors await a summit between the top leaders from the world’s two largest economies later this week for more clues on the Sino-US relations.
US President Joe Biden will meet Chinese President Xi Jinping in person for the first time in a year on Wednesday during the Asia-Pacific Economic Cooperation summit in San Francisco. It will be only the second in-person meeting between the two leaders since Biden took office in January 2021.
Sino-US bilateral relations have been one of the key factors influencing the yuan’s movements over the past few years, and any signs of positive developments could lift the Chinese currency.
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 7.1769 per dollar, 2 pips firmer than the previous fix of 7.1771.The official midpoint fixing continued to come in stronger than market projections, traders and analysts said, interpreting it as an official attempt to rein in excess yuan weakness.
Monday’s guidance rate was 1,120 pips stronger than Reuters estimate of 7.2889.
In the spot market, the onshore yuan opened at 7.2929 per dollar and weakened to a low of 7.2965, the softest level since Nov. 3. By midday, it was changing hands at 7.2962, 112 pips weaker than the previous late session close.
China’s yuan hits one-week low on expectations of more policy easing
“Top policymakers view the exchange rate stability as a prerequisite for restoring confidence in yuan assets, and in our view, have the means to achieve this,” analysts at Goldman Sachs said in a note, adding the PBOC has kept the daily fixing around 7.18 for almost two months, restraining the move higher in spot yuan prices.
“Our USD/CNY forecasts of 7.30/7.30/7.15 over 3/6/12 month horizon suggest a stable profile and a low beta to broad USD moves in 2024.
Separately, market participants said they will quickly shift their attention to October loan growth data, which is expected to be released this week.
And the central bank is also poised to offer 850 billion yuan worth of medium-term lending facility (MLF) loans on Wednesday. Markets will pay close attention to the amount of liquidity offerings and the borrowing cost to gauge the official stance.
“The PBOC has kept its policy rates on hold for the past couple of months,” said Julian Evans-Pritchard, head of China economics at Capital Economics.
“But we expect it to resume policy easing before long and have penciled in a surprise cut to the rate on its MLF (this) week,” he said, attributing the rate cut to an unexpected contraction in factory manufacturing data and falling consumer prices in October.
China last trimmed key policy rates in August to aid economic recovery.
By midday, the global dollar index stood at 105.851, while the offshore yuan was trading at 7.3089 per dollar.