China's yuan climbs to 3-year high on stronger guidance

SHANGHAI: China's yuan rose on Wednesday, extending gains to a near three-year high, as the central bank guided the currency higher and the dollar languished.

The People's Bank of China set the midpoint rate at 6.4099 per dollar prior to market open, 184 pips firmer than the previous fix of 6.4283 and the strongest such guidance since June 14, 2018.

Spot yuan opened at 6.4062 per dollar, rose past the psychologically important 6.4000 per dollar level and pushed as high as 6.3940 per dollar, the strongest since June 2018.

It was changing hands at 6.3959 at midday, 161 pips firmer than the previous late session close.

The offshore yuan was trading at 6.3875 per dollar.

Traders said the strong fixing might indicate regulators remain tolerant about recent gains.

"It seems the regulators still insist that the exchange rate should be determined by the market," said a trader at a Chinese bank.

Analysts said yuan appreciation could help ease China's imported inflation pressure.

In remarks published last week, a central bank official said China should let the yuan strengthen to help offset the impact of rising import prices.

Beijing has vowed to maintain stability in the country's commodities markets after prices rallied earlier this year.

"Though it's more of expectations management, rather than direct intervention by the PBOC, including by purchasing the yuan to forcibly push the currency higher," said Shen Xinfeng, chief macroanalyst at Northeast Securities.

Shen also attributed the yuan' strength to a weak dollar, which slid below the key 90 level.

The dollar wallowed near its weakest since early January against major peers on Wednesday, as Treasury yields eased amid Federal Reserve insistence that stimulus will continue despite current inflationary pressures.

US Federal Reserve policymakers have begun to acknowledge they are closer to debating when to pull back some of their crisis support for the US economy, even as they say it is still needed to bolster the recovery and employment.

The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 97.59, firmer than Tuesday's 97.58.

The global dollar index fell to 89.624 from the previous close of 89.699.

Offshore one-year non-deliverable forwards contracts (NDFs), considered the best available proxy for forward-looking market expectations of the yuan's value, traded at 6.5517, 2.16 percent away from the midpoint.