Yuan holds steady, PBOC launches new repo operations

China's yuan was little changed against the dollar on Monday, as the greenback pulled back from a one-year high and the central bank launched overnight reverse repo operations, reinforcing efforts to manage onshore liquidity.

Since the Federal Reserve's policy meeting in mid-June, expectations that U.S. interest rates will stay elevated for longer have underpinned the dollar and kept Asian currencies, including the yuan, on the defensive.

The spot yuan FX_IDC:USDCNY opened at 6.8034 per dollar and was last trading at 6.7984 as of 0253 GMT, 6 pips lower than the previous late session close.

Analysts at investment bank CICC said a stronger dollar could exert mild downward pressure on the yuan, but domestic support from corporate dollar settlement and the central bank's daily midpoint fixing had not changed fundamentally.

A short-term pullback in the yuan from a nearly three-year high could instead attract more dollar settlement demand, limiting the duration and extent of any rebound in the currency pair, the analysts said.

The yuan is down 0.5% against the dollar this month, and 2.9% firmer this year.

The dollar was on the defensive on Monday but remained on track for its biggest monthly gain in nearly a year, due to tension in the Gulf and ahead of jobs data that could shape the Federal Reserve's rate path.

Prior to the market opening, the People's Bank of China set the midpoint rate FX_IDC:USDCNY at 6.8175 per dollar, 134 pips weaker than a Reuters estimate. The spot yuan is allowed to trade a maximum of 2% on either side of the fixed midpoint each day.

The PBOC appears to have eased its use of the counter-cyclical adjustment factor, allowing both the onshore and offshore yuan to move more closely in line with broader dollar trends, analysts at Maybank said in a note.

China's central bank launched overnight reverse repo operations on Monday, a move markets interpreted as deepening its control over liquidity conditions and aligning its policy framework more closely with global peers.

The offshore yuan traded at 6.8007 yuan per dollar FX:USDCNH, up about 0.06% in Asian trade.

The dollar index TVC:DXY, which measures the greenback against a basket of six currencies, was 0.020% lower at 101.34.

LEVELS AT 0253 GMT