Yuan steady after dollar softens, awaits US CPI

China's yuan maintained its stability against the US dollar on Tuesday amid a soft dollar, with markets anticipating US inflation data for insights into the policy direction. The currency opened at 6.6711 per dollar and remained at 6.671 as of 0300 GMT, advancing 14 pips from the previous day's close. The gains were constrained by several Chinese banks' sharp hikes in dollar deposit rates, sometimes surpassing US benchmarks, which could discourage cash inflows and moderate the yuan's rise.

The Chinese currency has appreciated by approximately 10% against the dollar since early 2025, prompting authorities to intervene to slow the pace. The People's Bank of China announced a week ago that banks will be required to hold a higher reserve of foreign currency. Analysts at OCBC view recent policy measures as an effort to moderate the RMB appreciation rather than reverse its direction.

"Looking ahead, broader USD movements may increasingly influence USDCNH, although daily fixing guidance remains key," they noted. Before the market opened, the PBOC fixed the midpoint rate at 6.7167 per dollar, a 512-pip decrease from a Reuters estimate. The spot yuan is permitted to trade within a 2% range of the fixed midpoint daily.

The offshore yuan saw a slight increase to 6.6685 per dollar, up about 0.02% in Asian trade. The dollar index, which tracks the greenback's value against six currencies, rose 0.020% to 101.7. Investors are now focusing on upcoming US consumer price data published later Tuesday, following strong-than-expected payrolls that bolster the case for additional Federal Reserve interest rate hikes.

Economists polled by Reuters expect headline inflation to rise to 3.9% and core inflation to 2.8% year-over-year in October. Should inflation exceed these projections, it would likely strengthen the dollar and support the yuan's gains.