China's yuan edges higher as focus shifts to loan moves

(Updates domestic closing price, adds analyst comments and context)

SHANGHAI, Oct 13 (Reuters) – China’s yuan inched higher against the dollar at the domestic close on Wednesday, as investors digested upbeat exports data and shifted focus to whether the central bank would roll over maturing medium-term loans later this week.

Before the market opened, the People’s Bank of China set the midpoint yuan rate at 6.4612 per dollar prior, weaker than the previous fix of 6.4447.

In the spot market, the onshore yuan opened at 6.4509 per dollar and touched 6.4449, before ending at 6.4452, 20 pips firmer than the previous session close.

Currency traders said the policy divergence between China and other major economies would likely prompt capital outflows and pile depreciation pressure on the yuan.

Alongside rising expectations that U.S. Federal Reserve would soon taper pandemic-era stimulus, market participants are keen to see if China’s central bank rolls over 500 billion yuan ($77.53 billion) worth of medium-term loans due on Friday.

“The amount of cash injected through MLF operations this Friday can suggest subsequent monetary policy operations,” said Xing Zhaopeng, a senior China strategist at ANZ.

“If the net fund injection is not huge, there is still the possibility of a reserve requirement ratio (RRR) cut or targeted medium-term lending facility (TMLF) operation.”

The yuan was underpinned in early trading by unexpectedly strong exports, as solid global demand offset some of the pressure on factories from power shortages and a resurgence of domestic COVID-19 cases.

Overnight, the dollar hit a one-year high on expectations the U.S. Federal Reserve will taper its massive bond-buying program next month and concerns over soaring energy prices.

Investors are waiting for U.S. Consumer Price Index data on Wednesday and retail sales data on Friday for further clues as to when the Fed might begin winding down stimulus.

Three Fed policymakers on Tuesday said the economy has healed enough for the central bank to begin to withdraw its massive support.

Separately, China said on Tuesday it will liberalise coal-fired power pricing to tackle a worsening energy crisis which has led to production curbs across various industries.

Higher electricity prices may push up prices of Chinese exports to a certain extent in the medium term, and the resulting reduction in the trade surplus may place certain depreciation pressure on the renminbi exchange rate, investment bank CICC said. ($1 = 6.4489 Chinese yuan)

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