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China’s yuan dips as PBOC sets new midpoint

May 28, 2024

Key points:

  • PBOC sets the midpoint rate at 7.1101 per U.S. dollar.
  • Onshore yuan opened at 7.2425 per dollar, midday at 7.2461, weaker by 11 pips.

On Tuesday, China’s yuan slipped slightly as traders remained cautious ahead of key inflation data from major global economies. These reports could provide insights into the short-term trajectory of global interest rates.

Chart displaying USD/CNH exchange rate at 7.26184 with a trend of 0.11%, reflecting China's yuan dipping as the People's Bank of China (PBOC) sets a new midpoint. The chart features moving averages (MA) and MACD indicators. The midpoint rate is used as a benchmark, allowing the yuan to trade within a 2% band around this rate. Setting the rate slightly weaker signals the PBOC's approach to managing the currency amidst global economic uncertainties. Image hosted by VT Markets, a forex CFDs brokerage.

SEE: The offshore yuan (USDCNH) trading at 7.26184 as seen on the VT Markets app.

PBOC weakens rate of yuan in May

The People’s Bank of China (PBOC) set the midpoint rate for the yuan at 7.1101 per U.S. dollar before the market opened, marking a weaker level compared to the previous fix of 7.1091. The midpoint rate is often used as a benchmark as it allows the yuan to trade within a 2% band around this rate. Setting this rate slightly weaker signals the PBOC’s approach to managing the currency amidst global economic uncertainties.

In the spot market, the onshore yuan began trading at 7.2425 per dollar and by midday, it was at 7.2461, representing an 11 pips decline from the previous close. This movement reflects market caution as traders await inflation data from key economies such as Germany, Japan, and the United States.

Also read: Australian Dollar climbs above $0.67 with fresh China stimulus and US Fed rate cut bets

Dollar dips slightly as markets eye key inflation report

The U.S. dollar experienced a slight dip on Tuesday due to a modest increase in risk appetite. However, it maintained a tight range against other currencies, as markets anticipated the U.S. core personal consumption expenditures (PCE) price index report on Friday. This report is significant as it serves as the Federal Reserve’s preferred measure of inflation, and analysts expect the index to remain steady on a monthly basis.

Recently, Shanghai lowered the minimum downpayment ratios for home buyers and eased some home purchase restrictions, following similar national measures aimed at stabilising the market.

However, consumer confidence remains a hurdle, as potential buyers are cautious about falling home prices.

The global dollar index dropped to 104.45 from the previous close of 104.595, while the offshore yuan traded at 7.2587 per dollar.

Yuan market at 3:33AM GMT:

  • Onshore Spot: Divergence of the dollar/yuan exchange rate indicates spot yuan is trading stronger than the midpoint.
  • Offshore CNH Market: Trading continues to reflect caution among investors.

The PBOC’s role in setting the midpoint rate demonstrates its influence over the yuan’s valuation, providing a buffer against market volatility. Traders should remain vigilant and prepared for potential volatility in the coming days.

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