China's yuan slips as traders take profits after stimulus-fueled rally
SHANGHAI, Sept 27 (Reuters) -China's yuan slipped on Friday but still hovered near its strongest level in 16 months after Beijing rolled out a slew of monetary and fiscal stimulus that boosted market sentiment this week.
Some traders said they took profits on the recent yuan rally, as onshore markets will be closed for the Golden Week holidays starting next Tuesday.
China's central bank said on Friday it would cut the amount of cash that banks must hold as reserves by 50 basis points and lower the borrowing cost of its seven-day reverse repurchase agreements by 20 basis points, part of efforts flagged on Tuesday aiming to get the ailing economy back on more solid footing.
The yuan has gained 0.5% this week to around the strongest level since May 2023, and is now up 1.2% so far this year, underpinned by the Federal Reserve's rate cuts that have weighed on the dollar and China's most aggressive stimulus package since the pandemic.
Following Tuesday's policy easing announcement, China's Politburo on Thursday signaled a more supportive and coordinated policy approach, said Tao Wang, chief China economist at UBS.
"The Politburo meeting and its clear policy tone, including on the need for 'counter-cyclical fiscal policy', raised market expectations of a meaningful fiscal stimulus that has been absent this year and in the latest announcements," Wang said.
Reuters reported on Thursday that China plans toissue special sovereign bonds worth about 2 trillion yuan ($284.43 billion) this year as part of fresh fiscal stimulus, citing two sources with knowledge of the matter.
Citi's traders took profits on long offshore yuan against the dollar due to the magnitude of the recent rally, according to a note to clients.
"In the interest of risk management and cognizant of liquidity being impaired ahead of the Golden Week holidays, we think it is prudent to take profit on this position for now," Citi traders said.
The offshore yuan CNH=D3 was down roughly 0.3% on Friday to 6.99 per dollar.
"Additional fiscal support, if seen, may keep China equities afloat but have less of an impact on FX near-term," they said.
Prior to the market's opening, the People's Bank of China (PBOC) set the midpoint rate CNY=PBOC, around which the yuan is allowed to trade in a 2% band, at 7.0101 per U.S. dollar, strongest since May 2023.
The spot yuan CNY=CFXS opened at 7.0150 per dollar and was changing hands at 7.0136 as of 0257 GMT, 26 pips weaker than the previous late session close.
Reporting by Shanghai Newsroom; Editing by Kim Coghill
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