SHANGHAI, Feb 5: China’s yuan weakened as local dollar demand ahead of the Lunar New Year holiday offset a steep fall in the greenback in global markets and a stronger central bank midpoint, traders said.
The Chinese foreign exchange market will be closed all next week for the Lunar New Year holiday, and corporates typically need dollars to cover operations during the break. Globally, the dollar index hit a fresh three-month low overnight against a basket of major global currencies, mainly the euro, losing a combined 2.4 percent in two sessions, hit by dimming prospect of further U.S. rate hikes. It steadied in Asian trading on Friday but remained on track for weekly losses, as investors braced for U.S. employment figures later in the session for the latest clues on the outlook for the Federal Reserve’s monetary tightening path. The People’s Bank of China set the midpoint rate at 6.5314 per dollar prior to market open, 0.2 percent firmer than the previous fix 6.5419. The spot market opened at 6.5640 per dollar and was changing hands at 6.5690 at midday, 0.1 percent weaker than the previous close. However, if the yuan closes at the midday level, it will appreciate 0.1 percent for the week. Traders said they expected the yuan to remain stable around the current level in the first couple of weeks after the Lunar New Year break. “The PBOC can relax a little given the dollar’s weakness of late,” said a dealer at a Chinese commercial bank in Shanghai. “But it is unlikely to give up its efforts to curb the yuan’s downside for now, and so the currency is likely to stay stable around 6.57 right after the holiday.” The yuan has been under downward pressure since the second half of last year due to a steep depreciation of non-dollar currencies around the world and because of a sharp slowdown in the world’s second-largest economy. After it lost more than 2 percent of its value from late November to early January, the PBOC has taken steps to help stabilise the Chinese currency. The offshore yuan traded in Hong Kong has also strengthened in line with the dollar’s global correction, narrowing its spread against the onshore yuan. The discount of the offshore yuan against its onshore counterpart dropped to only 0.1 percent by the midday from 0.8 percent at the close on Tuesday before the dollar slump. The expectation that speculators would launch a new assault to depress the yuan during the Lunar New Year break, when official Chinese players such as state banks would be absent from the market, subdued to some extent after the dollar’s depreciation, traders said. “It’s good news for the Chinese authorities for now,” said a dealer at a European bank in Shanghai. “But the yuan’s long-term trend to depreciate against the dollar won’t reverse partly because the yuan needs to play a catch-up with the losses of other currencies to the dollar.” (AGENCIES)
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