Yuan traders cautious ahead of near-certain US rate rise

PUBLISHED : Monday, 13 March, 2017, 12:10pm
UPDATED : Monday, 13 March, 2017, 12:10pm

The yuan fluctuated within a small range on Monday morning as investors stayed cautious ahead of a meeting of the US Federal Reserve this week where policy makers are expected to raise interest rates.

The offshore yuan in Hong Kong reversed a two-day gain to trade 0.08 per cent, or 52 points, weaker at 6.8904 as of 10.50 am, while the onshore yuan in Shanghai rose for a third straight trading day, up 0.01 per cent, or 7 points, at 6.9045.

The People’s Bank of China guided the midpoint rate up by 135 basis points to 6.8988, the biggest daily increase for two weeks. Traders on the mainland are only allowed to trade the currency within a 2 per cent range of the guided price.

Zhou Xiaochuan, the PBOC’s governor said on Friday that China has many monetary policy tools, and policy in general would be prudent and neutral.

The high probability that the Federal Reserve will raise its base rate at its policy meeting on March 15 is putting some downward pressure on the yuan.

The case for a rate rise was further bolstered on Friday by robust US jobs data. Nonfarm payrolls rose by 235,000 jobs in February, following a 238,000 increase in January that was more than previously estimated.

That’s the best back-to-back performance since July, according to the data from the US Labor Department.

Zhou Hao, an analyst at Commerzbank, said a rate rise this week will further boost the dollar. He sees the greenback climbing 13 per cent by the end of the year, with the yuan declining to 7.15.

However, the dollar was basically flat on Monday morning against a basket of its major peers as investors priced in the near-certainty of a rate rise. The dollar index added 0.01 per cent to 101.26 as of 10.50 am.

Deng Haiqing, an analyst from Jiu Zhou Securities, said the uncertainty in currency markets is not about the “US Fed rate hike”, but the policies of US President Donald Trump.

The yen dropped 0.07 per cent to 114.83 ion Monday morning trade. Geopolitical issues in Asia have been weighing on the yen since North Korea fired four ballistic missiles last week, three of which fell into Japanese waters.

The British pound weakened 0.01 per cent to 1.2168 against the dollar, while the euro strengthened for a third day to trade at 1.0691.