China's yuan steadies ahead of Fed decision
SHANGHAI, Feb 1 (Reuters) -China's yuan steadied against the dollar on Wednesday, as the market awaited the Federal Reserve's policy meeting for more clues on the trajectory of U.S. monetary tightening.
The Fed is widely expected to raise interest rates by 25 basis points later in the session, but Fed Chair Jerome Powell's news conference will hog the spotlight as traders gauge how long the Fed is likely to stay hawkish. FRX/
Prior to market opening, the People's Bank of China (PBOC) set the midpoint rate CNY=PBOC at a two-week high of 6.7492 per dollar, 112 pips or 0.17% firmer than the previous fix of 6.7604.
In the spot market, the onshore yuan CNY=CFXS opened at 6.7503 per dollar and was changing hands at 6.7514 at midday, 17 pips firmer than the previous late session close.
Some traders said the yuan's resilience on Wednesday morning was underpinned by fresh signs of recovery in January amid China's economic and border reopening.
China's factory activity shrank more slowly in January after Beijing lifted tough COVID curbs late last year which helped ease pressure on manufacturers though infections among workers hampered production, a private sector survey showed.
However, caution ahead of the Fed's rate decision kept the market trading narrowly within a range of around 120 pips in morning deals, with volume also shrinking to $9.1 billion by midday from a normal half-day volume of about $15 billion.
Other global central banks including the European Central Bank and the Bank of England are also scheduled to announce rate decisions, which could bring volatility to major currencies.
Separately, Premier Li Keqiang's pledge again to keep the yuan basically stable during his visits to the PBOC and FX regulator this week prompted some speculation the central bank would unwind counter-cyclical measures, which were rolled out last year to slow the pace of yuan depreciation.
"It may be a bit early to remove the risk reserve on FX forward purchases or any similar actions. 6.5 seems to be a more reasonable level," said Iris Pang, chief economist for Greater China at ING.
"However, we cannot rule it out as the Chinese government wants the economy to recover smoothly during the reopening period. If there is anything that could hurt the economy at the moment, the government is likely to try to minimise the risk."
By midday, the global dollar index .DXY rose to 102.164 from the previous close of 102.097, while the offshore yuan CNH=D3 was trading at 6.7554 per dollar.
The one-year forward value for the offshore yuan CNH1YOR= traded at 6.616 per dollar, indicating a roughly 2.11% appreciation within 12 months.
The yuan market at 0306 GMT:
ONSHORE SPOT:
Item | Current | Previous | Change |
PBOC midpoint CNY=SAEC | 6.7492 | 6.7604 | 0.17% |
Spot yuan CNY=CFXS | 6.7514 | 6.7531 | 0.03% |
Divergence from midpoint* | 0.03% | ||
Spot change YTD | 2.20% | ||
Spot change since 2005 revaluation | 22.59% | ||
Key indexes:
Item | Current | Previous | Change |
Dollar index | 102.164 | 102.097 | 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= * | 6.7554 | -0.06% |
Offshore non-deliverable forwards CNY1YNDFOR= ** | 6.6242 | 1.89% |
*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 Jacqueline Wong
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