Yuan drifts amid talk Beijing may slow pace of policy easing

SHANGHAI, April 23 (Reuters) - China's yuan was little
changed against the U.S. dollar on Tuesday as investors combed
through a flurry of comments from policymakers for clues on the
pace of further monetary easing.
After unexpectedly resilient economic data for March, some
analysts have bumped up growth forecasts for 2019 and scaled
back expectations of additional policy support measures.
But China watchers such as Nomura say Beijing cannot afford
to stop easing yet, as it is too early to tell if the economy is
back on sustainably solid footing.
Prior to market opening on Tuesday, the People's Bank of
China set the midpoint rate at 6.7082 per dollar, 47
pips or 0.07 percent weaker than the previous fix of 6.7035.
In the spot market, the yuan opened at 6.7105 per
dollar and was changing hands at 6.7123 at midday, only 1 pip
weaker than the previous late session close.
Spot yuan remained confined to a tight trading range of less
than 60 pips, reflecting traders' deep uncertainty over monetary
policy direction.
On the whole, however, a more cautious approach to further
stimulus would suggest policymakers are growing more confident
about the economic outlook, analysts said.
"We have turned more positive on RMB after global centrally
banks have turned more easing in the past two months,"
strategists at OCBC said in a research note.
"The recent fine-tuning of China's monetary policy stance
further reinforces our positive RMB outlook this year," they
said in a note on Tuesday, adding that they expect the yuan to
test 6.68 per dollar in the near term.
Onshore yuan rose to a high of 6.6854 per dollar at one
point last week after China reported stronger-than-expected
first-quarter gross domestic product (GDP) growth and March
activity data.
Top-ranking policymaking bodies including the Politburo, the
State Council, the central bank and the Central Financial and
Economic Affairs Commission have all held meetings in the last
two weeks
China should fine-tune monetary policy in a pre-emptive way
based on economic growth and price changes, the official Xinhua
News Agency said on Monday, citing a meeting of the financial
commission chaired by President Xi Jinping.
Despite the recent upbeat data, Lu Ting, chief China
economist at Nomura in Hong Kong, cautioned there was a risk the
economy could face renewed pressure in coming months.
"We believe the pace of monetary easing will slow, but it is
still too early to withdraw monetary easing measures despite the
limited monetary policy scope," he said.
"More specifically, we expect liquidity injections through a
targeted RRR cut or other facilities, as we believe Beijing
cannot afford to let financing costs rise at the pace of the
past two weeks."
The benchmark overnight repo traded in the
interbank market, considered one of the best indicators of
general liquidity in China, surged to as much as 3.84 percent in
the morning, the highest level since May 2018.
The global dollar index rose to 97.303 at midday from
the previous close of 97.287.
The offshore yuan was trading at 6.7136 per dollar
as of midday.

The yuan market at 0402 GMT:

Item Current Previous Change
PBOC midpoint 6.7082 6.7035 -0.07%

Spot yuan 6.7123 6.7122 0.00%

Divergence from 0.06%
Spot change YTD 2.39%
Spot change since 2005 23.30%

Key indexes:

Item Current Previous Change

Thomson 96 96.01 0.0
CNH index
Dollar index 97.303 97.287 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 percent from official midpoint rate it sets each


Instrument Current Difference
from onshore
Offshore spot yuan 6.7136 -0.02%
Offshore 6.7525 -0.66%

*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 Winni Zhou and John Ruwitch; Editing by Kim

2019-04-23 07:09:19

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