1. China’s yuan weakens a notch, market awaits Fed meeting

China’s yuan weakens a notch, market awaits Fed meeting

China's yuan weakened slightly against the dollar on Tuesday, in line with the central bank's midpoint and firmer US currency as markets braced for a rate rise from the Federal Reserve.

By: | Shanghai | Published: March 14, 2017 10:20 AM
A Shanghai-based trader said the market was “balanced” ahead of the US central bank’s two-day meeting starting later on Tuesday. (Reuters)

China’s yuan weakened slightly against the dollar on Tuesday, in line with the central bank’s midpoint and firmer US currency as markets braced for a rate rise from the Federal Reserve. The People’s Bank of China set the midpoint rate at 6.9118 per dollar prior to market open, weaker than the previous fix 6.8988. The spot market opened at 6.9156 per dollar and was changing hands at 6.9173 at midday, only 8 pips softer than the previous late session close and 0.08 percent weaker than the midpoint. A Shanghai-based trader said the market was “balanced” ahead of the US central bank’s two-day meeting starting later on Tuesday. Markets have largely priced in a rate increase and will be focused on signals from policymakers about the pace of future rises.

“There was some corporate dollar demand in the morning,” said the trader, adding that room for further weakness in onshore spot yuan was limited due to its stronger offshore counterpart. The offshore yuan was trading 0.21 percent firmer than the onshore spot at 6.9027 per dollar by midday. “Along with the CNH FX intervention risk at 6.93 level, we expect the CNH to be resilient to the upcoming Fed’s rate hike later this week,” Ken Cheung, Asian FX strategist at Mizuho Bank in Hong Kong wrote in a note. Apart from the Fed’s policy meeting, market participants are awaiting Chinese Premier Li Keqiang’s annual news conference at the end of the National People’s Congress on Wednesday and a meeting of the Group of 20 finance ministers and central bankers starting in the German town of Baden Baden on Friday.

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US Treasury Secretary Steven Mnuchin will be “pushing hard” to advance US interests at the G20 meeting, including reaffirming commitments to avoid competitive currency devaluations, a senior Treasury official said on Monday. Separately, the domestic forex market shrugged off activity indicators released earlier on Tuesday which showed the world’s second-largest economy was on a steady growth path. China’s factory output and fixed-asset investment grew more strongly than expected in the first two months of the year, but retail sales disappointed after the government reduced a tax break on small cars. The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 95.04, slightly weaker than the previous day’s 95.05.

The global dollar index rose to 101.4 from the previous close of 101.31. Offshore one-year non-deliverable forwards contracts (NDFs), considered the best available proxy for forward-looking market expectations of the yuan’s value, traded at 7.1405, 3.20 percent weaker than the midpoint. One-year NDFs are settled against the midpoint, not the spot rate.

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