China's yuan retreats; focus on Politburo meeting, major central bank decisions
SHANGHAI, July 29 (Reuters) -China's yuan eased against the dollar on Monday, after posting its best week since December last week, as investors grew cautious ahead of a busy week of global central bank interest rate decisions and a key Politburo meeting.
Some signs of renewed tensions in the Middle East also supported safe-haven demand for the Japanese yen and pressured the yuan.
Markets are anxiously awaiting central bank decisions in Japan and the U.S. on Wednesday and official comments on the trajectory of monetary policy.
Also on investors radar, the Politburo, China's top decision-making body, will meet in coming days. It is expected to shed some light on China's near-term policy measures following reform plans laid out at the third plenum two weeks ago.
The yuan strengthened 0.27% against the greenback last week, thanks largely to a sharp bounce in Japanese yen.
Analysts at Goldman Sachs said the yen's strength underpinned the Chinese yuan, which also serves as a popular funding currency in Asia due to its relatively low yields versus other major economies.
"There may be a bit more room to unwind positioning, depending on macro data and global equity risk in the coming week, but we do not think the underlying direction has changed, and neither, does it appear do policy authorities in China," they said in a note.
"We continue to think that a gradual pace of offshore yuan depreciation will extend and such unwinds provide opportunities to reset the offshore yuan funding structures and the dollar-yuan pair upside hedges as the U.S. election and tariff talk gets closer."
At 0245 GMT, the yuan CNY=CFXS traded at 7.2537 to the dollar, compared with the previous close of 7.2502.
The yuan is down 2.1% to the greenback so far this year. It has been under pressure since early 2023 as domestic woes around a weak property sector, anaemic consumption and falling yields have driven capital flows out of yuan, while foreign investors have kept away from China's struggling stock market.
Prior to the market 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 7.1316 per dollar and 1,206 pips firmer than a Reuters' estimate.
The offshore yuan traded at 7.2599 yuan per dollar CNH=, up about 0.04% in Asian trade.
Separately, market participants will watch for China's July manufacturing data due on Wednesday to gauge the health of the broad economy.
China surprised markets twice last week by lowering a string of key interest rates and conducting an unscheduled lending operation, suggesting authorities are trying to provide heavier monetary stimulus to prop up the economy.
"Looking ahead, we expect the PBOC to deliver another 10-basis-point cut in the seven-day open market operation rate in Q4, as economic fundamentals remain on fragile footing," analysts at Barclays said in a note.
Key onshore vs offshore levels:
Overnight dollar/yuan swap onshore -10.90 pips vs. offshore -10.90
Three-month SHIBOR SHIBOR= 1.9 % vs. 3-month CNH HIBOR 3.1 %
LEVELS AT 0245 GMT
INSTRUMENT | CURRENT vs USD | UP/DOWN(-) VS. PREVIOUS CLOSE % | % CHANGE YR-TO-DATE | DAY'S HIGH | DAY'S LOW |
Spot yuan <CNY=CFXS | 7.2537 | -0.03 | -2.1 | 7.2503 | 7.2549 |
Offshore yuan spot CNH=D3 | 7.26 | 0.04 | -1.87 | 7.2588 | 7.2654 |
Reporting by Shanghai Newsroom
Editing by Shri Navaratnam
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