Yuan firms as Fed minutes show lack of support for US rate hike

By: | Published: August 18, 2016 10:27 AM

China's yuan firmed on Thursday as the dollar was broadly weaker after the release of minutes of the Federal Reserve's July meeting that showed policymakers opposed to a near term hike in interest rates outnumbered those in favour of one.

China's yuan firmed on Thursday as the dollar was broadly weaker after the release of minutes of the Federal Reserve's July meeting that showed policymakers opposed to a near term hike in interest rates outnumbered those in favour of one. (Reuters)China’s yuan firmed on Thursday as the dollar was broadly weaker after the release of minutes of the Federal Reserve’s July meeting that showed policymakers opposed to a near term hike in interest rates outnumbered those in favour of one. (Reuters)

China’s yuan firmed on Thursday as the dollar was broadly weaker after the release of minutes of the Federal Reserve’s July meeting that showed policymakers opposed to a near term hike in interest rates outnumbered those in favour of one.

The People’s Bank of China set the midpoint rate at 6.6273 per dollar prior to market open, weaker than the previous fix 6.6056. The spot market opened at 6.6260 yuan per dollar and was trading at 6.6262 at midday, 77 pips away from the last close and making the yuan 0.02 percent stronger than the midpoint.

The spot rate is currently allowed to trade with a range 2 percent above or below the official fixing on any given day. “Certainly the yuan strengthened a bit today, but the broader trend remains pretty flat,” said a trader at a commercial bank in Shanghai. Despite the complacent attitude in the market, recent data hints at a mild revival of capital outflows, analysts say.

“SAFE [State Administration of Foreign Exchange] FX settlement data confirmed China’s capital outflows increased in July,” wrote Morgan Stanley analysts in Hong Kong in a note Thursday morning. “Nevertheless, recent capital outflows (around 30 billion per month since March) are still relatively moderate and tolerable when compared with the record outflows between Aug. 2015 and Feb. 2016 (80-100 billion per month).”

“While recent moderate capital outflows are still tolerable, if the outflows intensify, regulators are likely to allow further depreciation of the CNY and tighten capital restrictions.”

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