The offshore yuan held steady at 7.35 per dollar after the People’s Bank of China (PBOC) surprised markets with its decision to halt government bond purchases due to a supply shortage temporarily.
This unexpected move follows months of PBOC interventions to manage liquidity and address warnings of potential bubbles in the bond market. Long-dated yields repeatedly hit record lows as traders flocked to safe-haven assets amid a slowing economy.
The central bank clarified that bond purchases would resume based on supply-demand conditions, signalling a flexible approach to managing liquidity.
As Inauguration Day of President-elect Donald Trump draws closer, market participants are keeping a close eye on further inflation reports and data releases from key Asian markets.
Picture: USDCNH consolidates with recovering bullish momentum as traders weigh diverging US and Chinese policies, as seen on the VT Markets app.
The Yuan closed slightly lower at 7.3533 after testing intraday lows near 7.3426. Short-term moving averages indicated an upward trend but flattened quickly, highlighting some market indecision. That said, the MACD crossed into positive territory, with indicators of recovering bullish momentum.
The PBOC’s cautious stance on bond purchases suggests a balancing act between preventing liquidity shortages and avoiding asset bubbles.
The yuan is likely to remain under pressure in the near term as economic challenges persist. Soft inflation and prolonged producer deflation point to subdued growth.
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