SHANGHAI, Jan.4 (Reuters) – The Chinese yuan eased against the dollar on its first trading day of 2022, after posting full-year gains for two consecutive years, as investors feared a deviation of return between the world’s two largest economies does not trigger capital. exits.

The yield spread between Chinese and US 10-year government bonds fell to its lowest since mid-2019 on Tuesday morning, with Treasury yields supported by expectations of a possible US rate hike this year .

Ahead of the market opening, the People’s Bank of China (PBOC) pegged the median rate at a two-week low at 6.3794 per dollar, 37 pips lower than the previous patch of 6.3757.

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In the spot market, the onshore Yuan opened at 6.3696 to the dollar and changed hands at 6.3721 by noon, 171 pips lower than the previous session’s close.

Several traders said companies continued to convert dollars to yuan early on Tuesday, despite the shrinking yield advantage, limiting the local currency’s decline.

The Chinese yuan ended 2021 up 2.7% against a strengthening dollar, supported by robust exports, a growing trade surplus and steady inflows of capital into Chinese assets.

“The trade and interest differential will continue to be key drivers of CNY exchange rates in 2022, however, they are likely to support the CNY less,” said Lin Li, head of CNY research. global markets for Asia at MUFG Bank, in a note.

“Export growth is on the verge of slowing down, and divergent monetary policies between China and the United States mean that interest rate spreads are likely (to narrow), as (the) PBOC continues to ease its policy. policy while (the) Fed may raise its key rate three times. “

China cut its benchmark prime lending rate (LPR) for the first time in 20 months in its December fixing, with market participants largely expecting the PBOC to ease further to amortize an economic downturn.

Separately, traders said the impact of the Chinese Foreign Exchange Trading System (CFETS) decision to raise the dollar and the euro’s weightings in its key yuan basket index was limited. Read more

The CFETS index (.CFSCNYI) stood at 102.56 on Tuesday, after rising 8.05% to 102.47 in 2021.

As of noon, the Global Dollar Index (.DXY) was up at 96.265 from a previous close of 96.213, while the offshore Yuan traded at 6.3731 to the dollar.

The yuan market at 04:00 GMT:

PLACE ON LAND:

Key indexes:

* Divergence in dollar / yuan exchange rate. A negative number indicates that the spot yuan is trading stronger than the midpoint. The People’s Bank of China (PBOC) allows the exchange rate to rise or fall 2% from the official median rate it sets each morning.

CNH OFFSHORE MARKET

* Premium for the offshore spot on onshore

** The figure reflects the difference from the official midpoint of the PBOC, as undeliverable futures are settled relative to the midpoint. .

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Reporting by Winni Zhou and Andrew Galbraith; Editing by Ana Nicolaci da Costa

Our Standards: Thomson Reuters Trust Principles.