China's yuan weakens, state banks seen buying dollars ahead of Lunar New Year

  • 2/3/2021
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SHANGHAI, Feb 3 (Reuters) - The yuan weakened against a broadly stronger dollar on Wednesday, as state banks bought the greenback and yuan liquidity improved ahead of the Lunar New Year holiday, which begins on Feb. 11. "State banks are buying dollars to offset heavier seasonal corporate dollar selling ahead of the holiday. That"s why the yuan is sticking to 6.46 per dollar this week, no matter how the dollar index moves," said a trader at a Chinese bank. "But it is hard to explain why they are buying at 6.46." Before the market open, the People"s Bank of China (PBOC) set midpoint of the yuan"s daily trading band at 6.4669 per dollar, firmer than the previous fix of 6.4736. Spot yuan opened at 6.4545 per dollar and softened to 6.4596 at midday, 30 pips weaker than Tuesday"s late session close. The offshore yuan eased to 6.463 per dollar from a close of 6.4595 Tuesday. A private sector survey released on Wednesday showed China"s country"s services sector grew at its slowest pace in nine months in January. Despite slower growth, the People"s Bank of China (PBOC) has refrained this year from making substantial liquidity injections before the Lunar New Year holiday, which some analysts interpret as an attempt to limit financial risks. That has helped to drive interbank rates to multi-year highs in recent days, lifting the yuan. But rates eased after the PBOC made a large injection on Tuesday, and were lower still on Wednesday despite a small drain. The one-week Shanghai Interbank Offered Rate (SHIBOR) fell to 2.146% on Wednesday, its lowest since Jan. 15. "We expect the PBOC to ease the tight liquidity situation in the next couple of weeks and interbank rates to return to more desirable levels," Nomura analysts said in a note. The yuan was also pressured by a broadly firmer dollar, after Democratic lawmakers in the U.S. Congress moved toward advancing President Joe Biden"s proposed $1.9 trillion coronavirus aid plan without Republican support. The global dollar index was at 91.05, having touched a two-month high of 91.283 in the previous session. The yuan market at 4:00AM GMT: ONSHORE SPOT: Item Current Previous Change PBOC midpoint 6.4669 6.4736 0.10% Spot yuan 6.4596 6.4566 -0.05% Divergence from -0.11% midpoint* Spot change YTD 1.06% Spot change since 2005 28.13% revaluation Key indexes: Item Current Previous Change Thomson 96.72 96.62 0.1 Reuters/HKEX CNH index Dollar index 91.05 91.096 -0.1 *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 6.463 -0.05% * Offshore 6.6173 -2.27% 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 Andrew Galbraith; Additional reporting by Winni Zhou; Editing by Simon Cameron-Moore) Our Standards: The Thomson Reuters Trust Principles.

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