China's yuan eases, market awaits March PMIs for clues on economic recovery
SHANGHAI, March 29 (Reuters) -China's yuan eased against the dollar on Wednesday, weighed by a weakened official guidance fixing and higher corporate demand for the greenback, while investors await March manufacturing data due this week for more clues on economic recovery.
Prior to the market opening, the People's Bank of China (PBOC) set the midpoint rate CNY=PBOC at a near two-week low of 6.8771 per dollar, 22 pips weaker than the previous fix 6.8749.
In the spot market, the onshore yuan CNY=CFXS opened at 6.8760 per dollar and was changing hands at 6.8880 at midday, 125 pips weaker than the previous late session close.
Currency traders said higher corporate demand for the greenback and rising yield differentials between China and the United States dragged the yuan lower in morning deals.
Loosened yuan liquidity following the PBOC's decision to cut banks' reserve requirement ratio (RRR) that came into effect this week, and a rise in U.S. Treasury yields, pressured the swap curve 0#CNYCSWP=CFXS, traders said, adding the negative swap points discouraged some of their corporate clients from settling their FX receipts into the local currency.
The benchmark one-year dollar/yuan swaps traded in the forwards market CNY1Y=CFXS fell to a two-week low of -1,780 points on Wednesday.
"We think the CNY may be the most under-appreciated beneficiary of China's accelerating cycle," analysts at Barclays said in a note.
"Historically, the CNY has been a very cyclical currency, benefiting from stronger domestic growth ... We think the CNY has not fully reflected the broader USD weakening impulse and has room to strengthen."
Separately, some market analysts and investors said they would shift their attention to March manufacturing data due on Friday to gauge the health of the world's second largest economy after border reopening.
"We expect both manufacturing and non-manufacturing PMIs to be in above-50 territory, but services PMI could be smaller than February due to some normalizing in the pace of recovery," said Lin Li, head of global markets research for Asia at MUFG.
Carlos Casanova, senior economist for Asia at Union Bancaire Privée (UBP), however, said investors would focus more on sub-components of the data.
"PMIs measure sentiment on a month-on-month basis and are therefore exceptionally volatile," he said.
"Exports have remained subdued and we expect this trend will prevail through 2023.
By midday, the global dollar index .DXY rose to 102.595 from the previous close of 102.43, while the offshore yuan CNH=D3 was trading at 6.8892 per dollar.
The one-year forward value for the offshore yuan CNH1YOR= traded at 6.7287 per dollar, implying a 2.39% appreciation within 12 months.
The yuan market at 0343 GMT:
ONSHORE SPOT:
Item | Current | Previous | Change |
PBOC midpoint CNY=SAEC | 6.8771 | 6.8749 | -0.03% |
Spot yuan CNY=CFXS | 6.888 | 6.8755 | -0.18% |
Divergence from midpoint* | 0.16% | ||
Spot change YTD | 0.17% | ||
Spot change since 2005 revaluation | 20.16% | ||
Key indexes:
Item | Current | Previous | Change |
Dollar index | 102.595 | 102.43 | 0.2 |
*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= * | 6.8892 | -0.02% |
Offshore non-deliverable forwards CNY1YNDFOR= ** | 6.731 | 2.17% |
*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
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