China’s yuan rises to 2-week high on economic support pledge, state banks’ buying

HONG KONG: China’s yuan firmed on Tuesday to a near two-week high against the dollar, after top policymakers’ pledged to boost domestic demand and stabilize the yuan exchange rate at a key Politburo meeting.

The yuan also benefited from state-owned banks’ move to sell the dollar and buy the Chinese currency on Tuesday.

A day earlier, Xinhua cited the Politburo as saying that China will focus on expanding domestic demand and boost confidence as it steps up policy support to shore up a faltering post-COVID economic recovery.

Notably, the Politburo - top decision-making body of the ruling Communist Party - has for the first time in recent years underscored the necessity of maintaining a stable yuan exchange rate, analysts said.

“This means that policy expectations – and its impact on capital flows – will remain a key driver of the yuan going forward,” said Chen Jingyang, an HSBC Asia FX strategist said in a research note on Tuesday.

“Smoothing yuan depreciation pressure may become more of a policy priority from now on,” She said.

The earlier dollar selling-yuan buying action by major state-owned banks came after the People’s Bank of China set the midpoint rate at 7.1406 per US dollar prior to market open, firmer than the previous fix 7.1451, and 530 pips stronger than consensus estimates.

China’s yuan eases ahead of Politburo and global central bank meetings

The spot yuan opened at 7.1550 per dollar and was changing hands at 7.1541 at midday, 319 pips stronger than the previous late session close and 0.19% weaker than the midpoint.

The spot rate is currently allowed to trade with a 2% range above or below the official fixing on any given day.

While the Politburo meeting’s statement about stabilizing the yuan is not new as other authorities have made similar comments this year, “the market is giving that statement the benefit of the doubt, as expectation grows that more growth-supporting policies will come out after the meeting,” said Alvin Tan, head of Asia FX strategy at RBC Capital Markets.

The global dollar index fell to 101.253 from the previous close of 101.346.

The offshore yuan was trading 0.01% weaker than the onshore spot at 7.1536 per dollar.

The one-year forward value for the offshore yuan traded at 6.9376 per dollar, indicating a roughly 3.11% appreciation within 12 months.