Yuan retreats as traders watch for China foreign exchange data

Consensus forecast is for China to post a small decline in foreign reserves in January as depreciation pressure eases on the yuan

PUBLISHED : Tuesday, 07 February, 2017, 1:52pm
UPDATED : Tuesday, 07 February, 2017, 1:52pm

Onshore yuan pulled back against the US dollar on Tuesday following two days of gains, as traders eyed the possible release of China’s foreign reserves data later today.

Yuan in the spot market traded at 6.8758 per US dollar in early afternoon trade, down 0.2 per cent or 128 basis points from late Monday.

The offshore rate also retreated 0.2 per cent or 163 basis points to 6.8165, after three days of gains versus the greenback.

Earlier in the day, the People’s Bank of China guided the yuan slightly higher, setting its mid-point rate at 6.8604 per US dollar, stronger by 2 basis points.

Traders are looking ahead to the mainland’s foreign exchange reserve data for January, which could come out later on Tuesday.

“The consensus forecast for January foreign exchange reserves is US$3.0 trillion. The implied US$10.5 billion decline from December would be the smallest since July 2016 and way down from US$41 billion in December, ” said Tim Condon, an analyst for ING Asia.

“Positive valuation effects and reduced CNY [Chinese yuan] depreciation pressure – the CNH [offshore yuan] -CNY basis narrowed – lead us to see upside risk to the consensus forecast.”

Jingyi Pan, a strategist for IG Group, said concerns about a possible rate increase by the Federal Reserve in March had dominated markets after last Friday’s US jobs report exceeded market expectations and political concerns in Europe pushed the euro down.

“Notably, the US dollar had remained supported at the start of the week after going down a beaten path since the start of the year,” she said.