Yuan eases as U.S. vaccination progress props up dollar

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Reuters


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SHANGHAI — China’s yuan eased against

the dollar on Monday, as the rapid U.S. coronavirus vaccine

rollout strengthened recovery prospects in the world’s largest

economy, lifting the greenback.

The dollar began the week on a strong footing, helped

by optimism about the U.S. economy as the number of people

receiving vaccination shots hit 94 million people, far outpacing

Europe’s rollout.

The firmer dollar led China’s central bank to guide the yuan

lower, with spot prices following suit. Prior to market opening,

the People’s Bank of China (PBOC) set the yuan midpoint rate

at a three-month low of 6.5416 per dollar, 40 pips or

0.06% weaker than the previous fix of 6.5376.

In the spot market, the onshore yuan opened at

6.5415 per dollar and was changing hands at 6.5441 at midday, 23

pips weaker than the previous late session close.

Traders said the yuan largely tracked the dollar’s movements

in global markets as investors closely monitor details of the

U.S. fiscal stimulus to the economy to gauge its impact on major

currencies.

“RMB index continued to consolidate around 97 level sending

USD/CNY to fluctuate with the broad dollar movement. This trend

is likely to continue for a while,” Tommy Xie, head of Greater

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China research at OCBC Bank said in a note.

China’s trade-weighted yuan basket index stood at

97.15 as of Friday, according to official data, and was up 2.4%

so far this year, whereas the spot yuan weakened 0.24% against

the dollar.

Many analysts and market watchers said they have revised

down their yuan forecasts, as U.S. yields moved in the dollar’s

favor and China’s economic outperformance set to diminish.

“China’s economy is now well above trend and, with policy

stimulus being withdrawn, is on course for a cyclical slowdown

that isn’t reflected in consensus expectations,” said Julian

Evans-Pritchard, senior China economist at Capital Economics.

“At the same time, the outlook for the rest of the world has

brightened thanks to large-scale fiscal stimulus in the U.S. and

the successful development and rollout of multiple vaccines.”

Evans-Pritchard expects the yuan to weaken to 6.70 per

dollar by year-end and 6.90 by end-2022, downgraded from 6.20

for both years in the previous forecast.

Separately, another near-term market focus would be FTSE

Russell’s review on adding Chinese government bonds to its

flagship World Government Bond Index (WGBI) this week.

Assuming a 6% weighting in the index, HSBC fixed income

research expected inflows of $150 billion during the inclusion

process, the bank said in a note.

The global dollar index stood at 92.781 as of midday,

while the offshore yuan was trading at 6.5446 per

dollar.

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The yuan market at 0352 GMT:

ONSHORE SPOT:

Item Current Previous Change

PBOC midpoint 6.5416 6.5376 -0.06%

Spot yuan 6.5441 6.5418 -0.04%

Divergence from 0.04%

midpoint*

Spot change YTD -0.24%

Spot change since 2005 26.47%

revaluation

Key indexes:

Item Current Previous Change

Thomson 96.87 96.83 0.0

Reuters/HKEX

CNH index

Dollar index 92.781 92.783 0.0

*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 6.5446 -0.01%

*

Offshore 6.7259 -2.74%

non-deliverable

forwards

**

*Premium for offshore spot over onshore

**Figure reflects difference from PBOC’s official midpoint,

since non-deliverable forwards are settled against the midpoint.

.

(Reporting by Winni Zhou and Andrew Galbraith; Editing by Sam

Holmes)

In-depth reporting on the innovation economy from The Logic, brought to you in partnership with the Financial Post.

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