China’s yuan bounces from three-week low, market awaits key economic data

SHANGHAI, Jan 8 (Reuters) –China’s yuan on Monday bounced from a more than three-week low against the dollar hit in the previous session, but losses were trimmed as investors continued to digest U.S. jobs data and the monetary policy trajectory in the world’s largest economy.

Market participants in China’s FX market were cautious ahead of key economic data, including China’s December credit lending, trade and inflation due later this week and fourth-quarter GDP data next week, looking to gauge the health of the economy, traders said.

“Deflationary risks remain high and so we expect further easing in the coming weeks,” said Win Thin, global head of currency strategy at Brown Brothers Harriman, said in a note.

Prior to the market opening, the People’s Bank of China (PBOC) set the midpoint rate CNY=PBOC, around which the yuan is allowed to trade in a 2% band, at 7.1006 per dollar, 23 pips firmer than the previous fix of 7.1029.

The central bank continued its months-long trend of setting the official guidance rate at levels firmer than market projections, traders and analysts said, a move widely seen by markets as an attempt to keep the yuan stable.

“The USD/CNH pair is stuck within the 7.10-7.20 range,” Maybank analysts said in a note. “This was notwithstanding the recent bullish USD retracement. The yuan was propped up by the strong yuan fix.”

Monday’s midpoint fixing was 493 pips stronger than a Reuters estimate of 7.1499.

In the spot market, the onshore yuan CNY=CFXS rebounded from a more than three-week low of 7.1726 per dollar hit on Friday to trade at 7.1566 at midday on Monday, 106 pips softer than the previous late session close.

Its offshore counterpart CNH=D3 was trading at 7.1697 per dollar around midday, compared with the previous close of 7.1660.

The yuan weakness also reflected a rise in investor bets on more monetary stimulus in China to aid economic recovery.

Like Brown Brothers Harriman, many investment houses expect monetary easing to come in January.

Citi analysts expect a total of 20 basis points in rate cuts and 50 basis points of reductions to banks’ reserve requirement ratio (RRR) in 2024.

China is set to roll over 779 billion yuan ($108.83 billion) worth of medium-term policy loans due this month on Jan. 15, and may lower rates at a monthly loan prime rate (LPR) fixing on Jan. 22.

The yuan market at 0348 GMT:

ONSHORE SPOT:

Key indexes:

*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

*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 Shanghai Newsroom; Editing by Sonali Paul