SHANGHAI, Feb 23 (Reuters) - China's yuan firmed on Tuesday
after the central bank set stronger guidance for the currency's
trading band and as the dollar lurked near six-week lows ahead
of Federal Reserve chief Jerome Powell's testimony to the U.S.
Congress.
The yuan has kept to a narrow range since surging 1% against
the U.S. dollar on the first trading day of the year, and on
Tuesday was trading half a percent off of late-January highs.
"It feels like the yuan is not moving at all in the near
term, there are few long or short opportunities," said a trader
at a foreign bank, adding that some downward pressure on the
yuan is possible in the second quarter.
Before the market open, the People's Bank of China (PBOC)
set the yuan's daily midpoint at 6.4516 per dollar,
firmer than the previous 6.4563.
Spot yuan opened at 6.4581 per dollar and was
changing hands at 6.4584 around midday, 62 pips stronger than
Monday's late session close.
The offshore yuan traded almost at par with its
onshore counterpart, strengthening to 6.4583 per dollar from a
previous close of 6.4670.
Gains in the offshore and onshore yuan came as the global
dollar index fell to 90.015 from the previous close of
90.041, near a six-week low.
Investors expect Fed chief Powell, who gives his testimony
before Congress at 1500 GMT, to reassure the central bank will
tolerate higher inflation without immediately raising rates,
which could calm bond markets and weigh on the dollar.
The Thomson Reuters/HKEX Global CNH index, which
tracks the offshore yuan against a basket of currencies on a
daily basis, weakened to 96.04 from the previous day's 96.15.
While the yuan has moved little in recent weeks, Ming Ming,
an analyst at CITIC Securities, said its persistent strength
against the dollar will "inevitably" constrain domestic monetary
policy.
"If the exchange rate remains strong...this will continue to
suppress exports and increase upward pressure on domestic asset
prices. In view of the consideration to maintain equilibrium,
the PBOC will be restricted in monetary tightening, so domestic
monetary conditions will also be relatively loose," he said in a
note.
Offshore one-year non-deliverable forwards contracts
(NDFs), watched as an indicator of market
expectations of the yuan's value, traded at 6.631 on Tuesday.
The yuan market at 3:30AM GMT:
ONSHORE SPOT:
Item Current Previous Change
PBOC midpoint 6.4516 6.4563 0.07%
Spot yuan 6.4584 6.4646 0.10%
Divergence from 0.11%
midpoint*
Spot change YTD 1.08%
Spot change since 2005 28.15%
revaluation
Key indexes:
Item Current Previous Change
Thomson 96.04 96.15 -0.1
Reuters/HKEX
CNH index
Dollar index 90.015 90.041 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 6.4583 0.00%
*
Offshore 6.631 -2.71%
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 Andrew Galbraith; Additional reporting by Xiao
Han in Beijing; Editing by Jacqueline Wong)
.Source
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