China's yuan edges higher, market awaits Fed, Politburo meetings next week
Posted On July 22, 2022
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SHANGHAI, July 22 (Reuters) - China's yuan edged higher
against the dollar on Friday, following a strengthened official
guidance rate, while implied volatility in the options market
started to pick up ahead of the U.S. Federal Reserve's policy
meeting next week.
Prior to the market opening, the People's Bank of China
(PBOC) set the midpoint rate at 6.7522 per dollar, 98
pips or 0.15% firmer than the previous fix of 6.7620.
In the spot market, the onshore yuan opened at
6.7660 per dollar and was changing hands at 6.7655 at midday, 25
pips firmer than the previous late session close.
Currency traders said the slight strength in the spot prices
was guided by the midpoint fixing, though the market swung in a
very thin range of 100 pips on Friday morning.
Many participants were unwilling to make huge bets on the
yuan before the Fed's policy meeting next week, when it is
widely expected to deliver another 75-basis-point rate hike.
In the options market, implied volatility also picked up,
with the one-week tenor jumping to the highest level
in a month.
China is confident of resolving the impact of monetary
policy tightening by the U.S. Federal Reserve, the foreign
exchange regulator reassured markets on Friday, adding it will
closely monitor the pace of Fed policy adjustments, which could
affect global financial markets.
Separately, some investors also said the market will closely
monitor the July Politburo meeting next week, when China's top
decision-making body gathers to discuss economic policies for
the rest of the year.
While economic activity in China is slowly recovering from a
heavy COVID-induced hit in spring, infections are rising again
and the property market is reeling from crisis to crisis.
"We are looking at the mid-year Politburo meeting for
incremental measures to support investment amid the mortgage
non-repayment saga," Citi analysts said in a note, referring to
the growing number of homebuyers who are refusing to make
mortgage payments on unfinished apartments.
By midday, the global dollar index fell to 106.907
from the previous close of 106.91, while the offshore yuan
was trading at 6.7744 per dollar.
The yuan market at 0415 GMT:
Item Current Previous Change
PBOC midpoint 6.7522 6.762 0.15%
Spot yuan 6.7655 6.768 0.04%
Divergence from 0.20%
Spot change YTD -6.07%
Spot change since 2005 22.33%
Item Current Previous Change
Dollar index 106.907 106.91 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
OFFSHORE CNH MARKET
Instrument Current Difference
Offshore spot yuan 6.7744 -0.13%
Offshore 6.7272 0.37%
*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 Brenda Goh; Editing by Kim