Updated December 26th, 2023 at 14:36 IST
Chinese Yuan dips amid rising expectations for policy easing; bond prices climb
The onshore spot yuan was trading around 7.1450 per dollar, marking a decline of 84 pips.
China's yuan declined against the dollar on Tuesday, while Chinese bond prices saw an uptick amid growing expectations of additional monetary easing measures by Beijing.
The onshore spot yuan was trading around 7.1450 per dollar, marking a decline of 84 pips. China's central bank had set a stronger midpoint rate at 7.0965.
Several listed banks, including Ping An Bank, China Zheshang Bank, Shanghai Pudong Development Bank, and China Citic Bank, have recently announced cuts in deposit rates. The move follows the lead of China's major state banks, as reported by the official Shanghai Securities News on Tuesday.
The latest round of deposit rate reductions, aimed at alleviating pressure on banks' shrinking margins, has fuelled expectations of fresh monetary easing, including potential cuts in benchmark lending rates and reserve requirements.
These expectations contributed to the rise of China's 30-year treasury bond futures to record highs on Tuesday, as bond prices move inversely to rates. Guotai Junan Futures noted in a Tuesday note, "The bond market remains bullish, and market rates will trend lower."
However, some analysts remain sceptical about the likelihood of the U.S. Federal Reserve cutting interest rates soon, suggesting that the gap between US and Chinese yields could persist. Nanhua Futures expressed this sentiment, stating, "Judging from inflation levels and economic fundamentals, we don't think the Fed will start cutting rates in the first half of next year." They also noted that the currency market is experiencing lower volatility this week due to the Christmas holiday.
(With Reuters inputs)
Published December 26th, 2023 at 10:17 IST