SHANGHAI: China’s yuan firmed against the dollar on Thursday, after weakening for the prior three sessions, as traders await key data on U.S. inflation and Chinese manufacturing activity.
The yuan has been trading in tight ranges so far this week, as the market’s focus was mostly on dollar moves and the U.S. Federal Reserve’s rate cut pace.
Traders are awaiting the release of the Fed’s preferred inflation measure - the personal consumption expenditures (PCE) index - later on Friday to better gauge its policy path.
Investors are also keen to see progress on China’s economic recovery to be revealed in the country’s latest purchasing managers’ index (PMI) due on Saturday.
UBS on Wednesday cut its 2024 economic growth forecast for China to 4.6% from 4.9%, as it expects weaker property activity to have bigger drag on the overall economy than previously assumed.
The yuan is up 1.3% against the dollar this month and has almost recouped its losses since the start of the year, helped by a weakening dollar.
China’s yuan hovers near 3-week high
The dollar index steadied in Asia trade on Thursday, from its fall to a 13-month low of 100.51 on Tuesday.
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 7.1299 per dollar, only 2 pips weaker than a Reuters’ estimate.
“With the USD in consolidation mode, there is little need for PBOC to lean more strongly either way,” Maybank analysts said in a note.
The spot yuan opened at 7.1293 per dollar and was trading 34 pips firmer than the previous late session close at 7.1256 as of 0302 GMT.
Market participants said exporters’ hedging strategies was driving positive sentiment for the offshore yuan.
“The bullish CNH (offshore yuan) narrative is gaining steam, fuelled by the possibility that an increase in hedge ratios by Chinese exporters could drive CNH strength vs the USD,” said traders at Citi.
The offshore yuan traded at 7.128 yuan per dollar, up about 0.07% in Asian trade.
The dollar index, which measures it against six currencies, was 0.030% lower at 100.98.