MARKET NEWS
Yuan firms ahead of U.S. inflation, swaps touch 6-year highs - REUTERS
SHANGHAI, Sept 14 (Reuters) - China's yuan edged higher
against the dollar on Tuesday ahead of U.S. inflation data,
while strong demand for the Chinese currency in the forward
market pushed the long end of the swap curve to the highest in
six years.
Markets are watching U.S. inflation trends for more clues on
when the Federal Reserve will start to tighten monetary policy.
Higher U.S. interest rates could trigger capital outflows from
emerging markets.
On Tuesday morning, the yuan traded in tight ranges holding
above the psychological 6.45 per dollar threshold.
Prior to market opening, the People's Bank of China (PBOC)
set the midpoint rate at 6.45 per dollar, 3 pips
weaker than the previous fix of 6.4497.
The onshore spot yuan opened at 6.4488 per dollar
and was changing hands at 6.4472 at midday, 53 pips firmer than
the previous late session close.
Traders said the yuan was likely to continue tracking the
dollar's movements in the near term as comments from the Fed's
meeting next week could provide more insight on when it would
begin to withdraw pandemic-era stimulus.
The Wall Street Journal reported on Friday that Fed
officials will seek an agreement to begin paring bond purchases
in November.
Meanwhile, signs of liquidity tightness in the interbank
market also lent support, with benchmark one-year dollar/yuan
swaps jumping to a high of 1,840 points, the
loftiest since August 2015. Short-end swaps also moved upwards.
Traders said rises in the swap points come as banks need to
shore up their yuan positions towards the quarter-end and ahead
of the week-long National Day holiday starting on Oct. 1.
Investors will also be paying close attention to the PBOC's
open market operations on Wednesday, when 600 billion yuan
($93.07 billion) worth in a medium-term lending facility is set
to expire.
"Another 50 bp reserve requirment ratio (RRR) cut will
likely be delivered by the Chinese central bank in the second
half, possibly around the October National Day holiday, to keep
liquidity at a reasonably sufficient level," said Gao Qi, FX
strategist at Scotiabank.
However, traders added that some major state-owned banks
were seen very actively swapping dollars for yuan in recent
sessions.
China's major state banks often act as agents for the
central bank in currency markets, but they also trade on their
own behalf.
By midday, the global dollar index fell to 92.598
from the previous close of 92.626, while the offshore yuan
was trading at 6.4448 per dollar.