Yuan trades little change ahead of key Fed policy rate meeting

China’s currency traded little changed on Wednesday, as investors took a wait-and-see approach ahead of the conclusion of the Federal Reserve’s closely-watched policy board meeting later in the US day.

The onshore yuan in Shanghai was 0.09 per cent or 63 basis points weaker at 6.9047 against the US dollar, with the offshore yuan in Hong Kong eased 0.03 per cent or 24 pips to 6.9224 per dollar.

The People’s Bank of China on Wednesday set the yuan reference point against the US dollar at 6.9028, 94 basis points weaker than on Tuesday.

Traders are allowed to trade up to 2 per cent either side of the reference point for the day.

“The markets are sitting tight waiting for the Fed decision, but more so Janet Yellen’s forward outlook and, of course, the accompanying statement,” said Stephen Innes, senior trader at OANDA.

China released better than expected economic data on Tuesday. November data showed industrial output expanding at a slightly faster than expected 6.2 per cent in November, while fixed-asset investment increased 8.3 per cent in the first 11 months on year, according to the National Bureau of Statistics.

The run of positive economic data supports the markets renewed optimism regarding the mainland economy, even as concerns about capital outflows continue, Innes said.

In other foreign exchange trading, the British pound softened 0.09 per cent against the greenback to trade at US$1.2645, but the euro rose 0.08 per cent to US$1.0633.

Investors expect the Federal Reserve will announce an interest rate increase later Wednesday.

“We expect the Fed to hike rates 25 basis points, as largely expected. The focus will be on the dots and tone of the press conference,” economists at Bank of America Merrill Lynch said in a research report.

This is the first rate tightening to follow a quarter-point move last December.

Investors have priced in a faster trajectory of rate rises since the US presidential election, which means the focus will be on the statement, summary of economic projections (SEP) and the subsequent press conference for clues on the direction, BAML said.

“We think the risk is that the FOMC statement and SEP lean hawkish, given the potential for an upward shift in the dots and the possible limited extent of concern about the recent tightening in financial conditions. However, Fed chairwoman Janet Yellen is likely to maintain a cautious tone at the press conference. In our view, the risk is for near-term rates to increase and the dollar to strengthen following the meeting.”