SHANGHAI/HONG KONG: China's central bank and currency traders have found rare consensus on the yuan's value after months of widely divergent pricing, but analysts are divided about whether the current accord signifies a genuine relaxation of control by Beijing.
The spot market exchange rate and the central bank's guidance rate, or midpoint, have converged dramatically in recent weeks after spending months on opposite sides of the room.
The 200-day moving average of the spot rate and the midpoint matched up exactly on Monday morning at 6.1528 yuan per dollar.
It isn't supposed to be an unusual phenomenon; according to official rhetoric, the midpoint setting is based on a market-driven valuation based on a basket of currencies.
But ever since the central bank began widening the yuan's trading range, giving the spot rate wider room to diverge from the official guidance rate, the midpoint has looked anything like a median market price.
During a long-running rally that began in 2012, for example, the spot rate crossed to the strong side of the midpoint in September, then continued to trade at a premium on every trading day until February 2014.
February was the month when the People's Bank of China (PBOC) engineered a dramatic slide in the yuan, which led to major losses among speculators and Chinese corporates.
The spot rate then crossed to the weak side of the band and traded consistently at a discount until August, when it once again touched the midpoint.
But once the spot touched the guidance rate on Aug. 6 on the back of a recovery rally, a curious thing happened: the midpoint appeared to suddenly begin following the spot rate, as if the PBOC had waited for the market to catch up, then began walking alongside.
Since then, the two rates have largely moved in tandem, the longest such accord between the guidance rate and the actual market price since September 2012.
"I think perhaps the PBOC is trying to manage the midpoint in a way that reflects the market, that would be a logical explanation," said Dariusz Kowalczyk, strategist at Credit Agricole CIB in Hong Kong, although he allowed that traders "might not have the guts" to push the spot rate too far above the PBOC's guidance for now.
"But because the correlation has lasted for some time, it's more likely there's a policy effort here to keep the two close together."
Kowalczyk added that the convergence would also benefit the foreign multinationals which hedge their yuan risk using offshore non-deliverable forward (NDF) contracts, which are based and settled according to the midpoint, not the traded rate.
That means that when the traded rate and the midpoint are far apart, there can be considerable risk in using NDFs.
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