China’s yuan rises on weaker dollar prospects, stock market strength

HONG KONG: China’s yuan firmed against the dollar on Thursday, supported by bets of further weakness in the US currency following the resumption of rate cuts by the Federal Reserve as well as a robust local stock market.

By 0408 GMT, the yuan was 0.11% higher at 7.1235 to the dollar after trading in a 7.1220-7.1306 range.

Prior to the market opening, the People’s Bank of China set the midpoint rate at 7.1118 per dollar, 175 pips firmer than a Reuters’ estimate.

The spot yuan is allowed to trade 2% either side of the fixed midpoint each day.

The dollar held steady in Asian trade on Thursday after overnight gains.

While the pace of further US monetary easing remains unclear, analysts believe a weaker dollar trend will continue.

“We maintain year-end USD/CNY forecast at 7.10, underpinned by USD weakness, (China’s) current account surplus and stable USD/CNY fixings,” BofA Securities analysts said in a note.

The sustained strength of the Chinese stock market has also lifted investor risk appetite.

The Shanghai Composite Index, which is on track for the fifth consecutive monthly gain, continued to hover around a 10-year high.

Goldman Sachs expects the emerging market equity rally, including in China, can extend into the year-end thanks to AI optimism and strong foreign buying amid the US monetary easing, providing support to local currencies.

Separately, China will roll out further measures to support the development of yuan bonds in Hong Kong and accelerate global use of its currency, a senior official at China’s central bank said on Thursday.

The offshore yuan traded at 7.1285 yuan per dollar, up about 0.14% in Asian trade.

The offshore yuan weakened to 7.14 overnight due to gains in dollar.