Market looks to Zhou's comments for direction
The yuan barely budged against the dollar on Monday as China's central bank held the line via a steady midpoint fixing. Traders expect the yuan's stability to last at least until the end of the G20 meeting in Shanghai later this week.
G20 finance ministers and central bank governors are due to meet on Friday and Saturday to discuss issues including China's excess capacity, oil prices and global growth.
People's Bank of China (PBOC) Governor Zhou Xiaochuan will hold a news conference ahead of the meeting on Friday to answer questions from the media.
While such briefings are common for hosts of G20 meetings, the market is eager to see if Zhou can dispel recent confusion over China's yuan policy.
The central bank set the midpoint rate at 6.5165 per dollar prior to the market opening, 0.03 percent firmer than the previous fix of 6.5186.
The central parity rate of the yuan gained 21 basis points (bps) to 6.5165 against the dollar on Monday, according to the China Foreign Exchange Trading System (CFETS), the Xinhua News Agency reported.
In a commentary released last Thursday, the CFETS noted that a combination of the midpoint fixing from the central bank and the trade-weighted yuan exchange rate index would be critical to the yuan's direction in 2016.
The offshore yuan was trading at 6.5229 per dollar and was converging with the onshore yuan rate.
The spread between the two remained narrower than 50 bps by midday.
"Speculation in the offshore yuan market almost disappeared on the unequivocal signal from the central bank," said a trader at a Chinese bank in Shanghai.
Last Friday, the PBOC reversed preferential reserve requirement ratio cuts for banks that had failed to support certain sectors of the economy as a condition of the more accommodative monetary policy.
Also on Friday, Yi Gang, vice governor of the PBOC, commented: "An excessively expansionary monetary policy would lead to asset price bubbles and also the yuan's depreciation."
