China's yuan gains as dollar hit by rising bets of larger US rate cut
By Summer Zhen
HONG KONG, Sept 5 (Reuters) -China's yuan extended recent advances on the dollar on Thursday as the U.S. currency struggled against the backdrop of rising expectations for an outsized rate cut from the Federal Reserve following weaker U.S. economic data.
All eyes are on the U.S. payrolls data due on Friday for more clues on the health of the world's largest economy and how aggressively the Fed will cut rates at its meeting later this month.
Prior to the market opening, the People's Bank of China set the midpoint rate CNY=PBOC, around which the yuan is allowed to trade in a 2% band, at 7.0989 per dollar, its strongest since April 15 and 21 pips firmer than a Reuters' estimate.
By 0317 GMT, the yuan CNY=CFXS was 0.15% higher at 7.1017 to the dollar after trading in a range of 7.0962 to 7.1044.
Despite the ongoing concerns of a slowing Chinese economy, the yuan maintained its gains around the key 7.1 level thanks to the prospects of an imminent U.S. rate cut.
Markets are now pricing in a 44% chance of the Fed cutting rates by 50 basis points at its Sept. 17-18 meeting, up from 38% a day earlier, CME FedWatch tool showed.
"We think the recent CNY appreciation against USD is mostly driven by external factors," Goldman Sachs analysts said in a note.
In the short term, any unwind of yuan carry trade or potential dollar selling by exporters could lead to an overshoot in the yuan's strength, they said.
But the yuan is likely to "underperform currencies of major trading partners over the medium term, due to weak fundamentals and still-downbeat sentiment in China," the analysts added.
The Chinese currency is down 0.1% against the dollar this month, though its strength since late July has erased roughly all of this year's losses. It has been under pressure since early 2023 as domestic woes around a moribund property sector, anaemic consumption and falling yields boost capital outflows, and foreign investors stay away from its struggling stock market.
The offshore yuan traded at 7.1024 yuan per dollar CNH=, up about 0.16% in Asian trade.
The dollar's six-currency index =USD was 0.069% higher at 101.33.
LEVELS AT 03:16 GMT GMT
INSTRUMENT | CURRENT vs USD | UP/DOWN(-) VS. PREVIOUS CLOSE % | % CHANGE YR-TO-DATE | DAY'S HIGH | DAY'S LOW |
Spot yuan <CNY=CFXS | 7.1017 | 0.16 | 0 | 7.0962 | 7.1044 |
Offshore yuan spot CNH=D3 | 7.1024 | 0.16 | 0.33 | 7.095 | 7.1119 |
Reporting by Summer Zhen
Editing by Shri Navaratnam
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