SHANGHAI: China’s yuan rose to a fresh 16-month high on Wednesday and briefly crossed the key 7-per-dollar level offshore, underpinned by investor optimism around broad policy easing measures announced a day earlier to shore up a flailing economy.
The offshore yuan strengthened past the important 7 per dollar level for the first time since May 2023 to a high of 6.9952 per dollar in early Asian deals. It last traded at 7.0142 yuan per dollar at 0303 GMT.
Its onshore counterpart followed suit to hit a high of 7.0012 per dollar before last trading at 7.0198.
The strength in the Chinese currency comes a day after Beijing unveiled its biggest stimulus since the pandemic to pull the economy out of its deflationary funk and back towards the government’s growth target.
Yuan boosted as China unleashes stimulus
“We expect USD/RMB to be capped by better risk appetite, corporate hedging needs and expectations of further fiscal support,” said Ju Wang, head of Greater China FX & rates strategy at BNP Paribas.
“The probability of breaking past 7.0 is decent, in our view.”
Prior to the market opening, the People’s Bank of China (PBOC) set the midpoint rate, around which the yuan is allowed to trade in a 2% band, at 7.0202 per dollar, its strongest since May 2023 and 10 pips firmer than a Reuters’ estimate of 7.0212.
“The midpoint fixing came in line with market expectations,” said Ken Cheung, chief Asian FX strategist at Mizuho Bank.
“Keep the yuan strength ahead of the long holiday would be good for market sentiment and helpful for holiday spending,” he said, referring to the upcoming week-long National Day holiday.
The broader optimistic sentiment also lifted Chinese stocks, which saw the blue-chip CSI 300 Index up more than 2% in morning deals.
“Our base case for USD/CNY to stay within 7.0-7.1 by year-end remains unchanged,” analysts at Standard Chartered said in a note.
“But we acknowledge the rising possibility of the pair dipping below 7.0 near-term, on improved China risk sentiment, positive seasonality, and heavy exporter FX positioning.”
Earlier in the session, the PBOC lowered the cost of its medium-term loans to banks in a move consistent with the slew of policy support measures unveiled the previous day.
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