China’s yuan barely budged against the dollar on Monday as the central bank kept holding the line via a steady midpoint fixing. Traders expect the yuan’s stability to last at least until the end of the G20 meeting in Shanghai later this week.
G20 finance ministers and central bank governors are due to meet on Feb. 26 and 27 to discuss issues including China’s excess capacity, oil prices and global growth.
The People’s Bank of China (PBOC) Governor Zhou Xiaochuan will hold a news conference ahead of the meeting on Feb. 26 to answer questions from the media. While such briefings are common for hosts of G20 meetings, the market is eager to see if Zhou can dispel recent confusion over China’s yuan policy.
The central bank set the midpoint rate CNY=SAEC at 6.5165 per dollar prior to market open, 0.03 percent firmer than the previous fix 6.5186.
The spot market CNY=CFXS opened at 6.5190 per dollar and was changing hands at 6.5196 at midday, almost flat against the previous close.
The yuan softened 0.1 percent against the euro EURCNY=CFXS by midday at 7.2439. It also weakened 0.1 percent against the Japanese yen JPYCNY=CFXS, hovering at 5.7746 to 100 yen.
The yuan’s exchange rate weighted against a basket of trade-related currencies .CFSCNYI, issued every week by the market, the China Foreign Exchange Trade System (CFETS), rose 0.21 percent last week. Its latest reading was at 99.44.
In a commentary released last Thursday, CFETS noted that a combination of midpoint fixing from the central bank and the trade-weighted yuan exchange rate index was critical to the yuan’s future reference in 2016.
Offshore yuan CNH=D3 was trading at 6.5229 per dollar and was moving toward the onshore yuan rate. The spread between the two remained less than 50 basic points by midday.
“Speculation in the offshore yuan market almost disappeared on the unequivocal signal from the central bank,” said a trader at a Chinese bank in Shanghai.
Last Friday, China’s central bank had reversed preferential reserve requirement ratio (RRR) cuts for banks that had failed to support certain sectors of the economy as a condition of the more accommodative monetary policy.
Also on Friday, Yi Gang, vice governor of the central bank commented: “An excessively expansionary monetary policy would lead to asset price bubbles and also the yuan’s depreciation.”