CHINA’S yuan recovered all intraday losses on Thursday (Sep 19) to close near a 16-month high against the US dollar, underpinned by rising market expectations that Federal Reserve’s easing offered Beijing leeway on its own monetary policy.
The onshore yuan ended the domestic trading session at 7.0660 per US dollar at 0830 GMT, the strongest close since May 26, 2023.
The Fed kicked off its easing cycle on Wednesday with a larger-than-usual half-percentage-point cut that Chair Jerome Powell said was meant to show policymakers’ commitment to sustaining a low unemployment rate now inflation had eased.
A Reuters poll showed that China is widely expected to trim its main policy and benchmark lending rates on Friday.
“Despite a larger-than-expected 50bp Fed rate cut, we stick to our earlier rate-cut call for the People’s Bank of China (PBOC) in Q4 24 and in Q1 and Q2 25,” analysts at Barclays said in a note, referring to three 10 basis point cuts to PBOC’s short- and medium-term borrowing costs and one-year lending benchmark.
“Timing-wise, our base case expects the PBOC to cut rates in October post Q3 GDP data release, though we can’t rule out a rate cut this week.”
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Prior to the market opening, the People’s Bank of China (PBOC) set the mid-point rate, around which the yuan is allowed to trade in a 2 per cent band, at 7.0983 per US dollar, 59 pips weaker than a Reuters’ estimate of 7.0924.
Currency traders said they had received increased queries from their exporter clients to settle their foreign exchange receipts, and such conversions into the Chinese currency also supported the local unit.
August economic data, including credit lending and activity indicators, surprised to the downside in the world’s second largest economy. Faltering Chinese economic activity has prompted global brokerages to scale back their 2024 China growth forecasts to below the government’s official target of about 5 per cent.
President Xi Jinping last week urged authorities to strive to achieve the country’s annual economic and social development goals, state media reported, amid expectations that more steps are needed to bolster China’s flagging economic recovery. REUTERS
