Yuan eases in tight trade as China holds key lending rates steady
China kept benchmark lending rates steady on Monday, as expected, after it reported slightly better-than-expected second-quarter economic data.
The spot yuan opened at 7.1771 per dollar and was last trading at 7.179 as of 0311 GMT, 32 pips lower than the previous late session close and 0.37% weaker than the midpoint.
'We believe the current domestic and external environment continues to support the yuan, which may remain stable with mild fluctuations in the absence of external shocks,' CICC analysts said in a note.
China's economy grew at a slightly faster pace than expected in the second quarter, showing resilience in the face of U.S tariffs.
As August approaches, markets are likely to focus more on shifts in tariff expectations and developments in U.S. Federal Reserve appointments, CICC analysts said.
China wants to bring its trade ties with the U.S. back to a stable footing, its commerce minister said last week, adding that recent talks in Europe showed there was no need for a tariff war while urging the U.S. to act in a manner befitting of a superpower.
The onshore yuan was trading in narrow ranges in the morning session, with intraday volatility less than 30 pips.
Prior to the market opening, the People's Bank of China set the midpoint rate at 7.1522 per dollar, 262 pips firmer than a Reuters' estimate. The spot yuan is allowed to trade 2% either side of the fixed midpoint each day.
Market risk sentiment was lifted after China announced the start of construction on what will be the world's largest hydropower dam, located on the eastern rim of the Tibetan plateau and estimated to cost around $170 billion.
China's long-dated treasury futures dropped to their lowest level in five weeks on Monday, while bond yields broadly rose across tenors.
The offshore yuan traded at 7.1824 yuan per dollar, down about 0.01% in Asian trade.
Investors are also eyeing an upcoming Politburo meeting, expected later this month. UBS economists said the government is likely to maintain a supportive macro policy tone, but see limited urgency or likelihood for major new stimulus, citing stronger-than-expected second-quarter GDP growth.
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