China’s yuan eases after MLF rollover, first-quarter GDP in focus

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SHANGHAI — China’s yuan eased

against a strengthening dollar on Monday with investor sentiment

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subdued and the market awaiting China’s first-quarter economic

data due on Tuesday.

The dollar bounced from a one-year low in global markets as

resilience in core U.S. retail sales, a rise in short-term

inflation expectations and impressive Wall Street bank earnings

increased market expectations of an interest rate increase in

May.

Before the market opened, the People’s Bank of China (PBOC)

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set the midpoint rate at 6.8679 per dollar, 73 pips

weaker than the previous fix of 6.8606.

The spot yuan opened at 6.8758 per dollar and was

changing hands at 6.8769 at midday, 79 pips weaker than the

previous late session close.

Currency traders said the dollar’s movements should dominate

the yuan’s performance in the short term, while the domestic

monetary policy stance and the pace of economic recovery could

also affect sentiment.

The PBOC bank ramped up liquidity injection when rolling

over maturing medium-term policy loans for the fifth consecutive

month on Monday, while keeping the interest rate unchanged,

matching market expectations.

The liquidity injection was smaller than a market consensus

but higher than the amount maturing, suggesting the central bank

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is not particularly worried about the recovery of the economy,

said Iris Pang, chief economist for Greater China at ING.

Global investors are also keeping an eye out for Tuesday’s

first-quarter gross domestic product (GDP) report to gauge the

health of the world’s second-largest economy after it reopened

its borders.

“While we are still waiting for the first-quarter GDP data

due on Tuesday, the latest inflation and credit data for March

have given us a first glimpse of China’s uneven recovery,” said

Tommy Xie, head of Greater China research at OCBC Bank.

Stronger-than-expected export data in March also suggested

an “upside bias” to first-quarter GDP, Xie added.

Meanwhile, the stronger dollar also undermined the

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yuan, after the Federal Reserve governor said on Friday that

U.S. central bankers “haven’t made much progress” in returning

inflation to their 2% target and needed to move interest rates

higher.

By midday, the global dollar index rose to 101.689

from the previous close of 101.552.

The one-year forward value for the offshore yuan

traded at 6.7113 per dollar, indicating a roughly 2.49%

appreciation within 12 months.

The yuan market at 0326 GMT:

ONSHORE SPOT:

Item Current Previous Change

PBOC midpoint 6.8679 6.8606 -0.11%

Spot yuan 6.8769 6.869 -0.11%

Divergence from 0.13%

midpoint*

Spot change YTD 0.34%

Spot change since 2005 20.35%

revaluation

Key indexes:

Item Current Previous Change

Dollar index 101.689 101.552 0.1

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*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 6.8785 -0.02%

*

Offshore 6.7083 2.38%

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 Li Gu and Tom Westbrook)