China's yuan inches higher as money market liquidity tightens
SHANGHAI, Feb 9 (Reuters) -China's yuan inched higher against the dollar on Thursday, supported by signs of tightness in money markets and expectations that data will show robust credit growth.
Prior to market opening, the People's Bank of China (PBOC) set the midpoint rate CNY=PBOC at 6.7905 per dollar, 153 pips or 0.23% weaker than the previous fix of 6.7752.
In the spot market, the onshore yuan CNY=CFXS opened at 6.7922 per dollar and was changing hands at 6.7904 at midday, 36 pips firmer than the previous late session close.
China's short-term money rates remained elevated on Thursday. The volume-weighted average rate of the overnight repo CN1DRP=CFXS continued to hover at the highest level in two years, despite a generous injection of funds by the central bank to offset hefty maturing reverse repurchase agreements. CN/MMT
Traders and analysts attributed the upward pressure on cash rates to higher credit demand, which has sucked money out of the banking system.
A Reuters poll suggested that yuan loans extended by Chinese banks likely surged to a record high in January as the central bank moved to shore up growth in the world's second-biggest economy following a lifting of pandemic controls.
The data is expected to be released sometime between Feb. 9 to Feb. 15.
"The increase is likely above and beyond what could have been caused by the usual post-holiday effect," said Tommy Wu, senior economist at Commerzbank, referring to the week-long Lunar New Year holidays that wrapped up at the end of last month.
"We would argue that it could be indicative of stronger loan demand. This will in fact be a positive sign of the anticipated economic recovery is underway."
Gradual improvements in domestic economy and prospects for a strong rebound has reflected in the yuan's appreciation at the start of this year, analysts at financial market department of China Construction Bank said in a note.
They expected the yuan to face resistance at around its 200-day moving average of 6.86 per dollar and have strong support at 6.7 this month.
The Chinese yuan has gained 1.6% so far this year, reversing much of losses in 2022, when saw the worst annual performance in 28 years.
Investors were cautiously testing highs in the yuan amid uncertainty around the U.S. monetary tightening outlook. Markets will focus on the next week's U.S. inflation data for more clues, traders said. FRX/
By midday, the global dollar index .DXY fell to 103.353 from the previous close of 103.409, while the offshore yuan CNH=D3 was trading at 6.795 per dollar.
The one-year forward value for the offshore yuan CNH1YOR= traded at 6.6377 per dollar, indicating a roughly 2.37% appreciation within 12 months.
The yuan market at 3:18AM GMT:
ONSHORE SPOT:
Item | Current | Previous | Change |
PBOC midpoint CNY=SAEC | 6.7905 | 6.7752 | -0.23% |
Spot yuan CNY=CFXS | 6.7904 | 6.794 | 0.05% |
Divergence from midpoint* | 0.00% | ||
Spot change YTD | 1.61% | ||
Spot change since 2005 revaluation | 21.89% | ||
Key indexes:
Item | Current | Previous | Change |
Dollar index | 103.353 | 103.409 | -0.1 |
*Divergence of the dollar/yuan exchange rate. Negative number indicates that spot yuan is trading stronger than the midpoint. The People's Bank of China (PBOC) allows the exchange rate to rise or fall 2% from official midpoint rate it sets each morning.
OFFSHORE CNH MARKET
Instrument | Current | Difference from onshore |
Offshore spot yuan CNH= * | 6.795 | -0.07% |
Offshore non-deliverable forwards CNY1YNDFOR= ** | 6.6432 | 2.22% |
*Premium for offshore spot over onshore CNY=CFXS
**Figure reflects difference from PBOC's official midpoint, since non-deliverable forwards are settled against the midpoint. CNY=SAEC.
Reporting by Winni Zhou and Brenda Goh; Editing by Simon Cameron-Moore
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