China’s yuan extends weakness, but persistently firmer fixing checks losses

SHANGHAI: China’s yuan traded around the key 6.9-per-dollar level on Thursday, as a persistently firmer-than-expected official guidance rate outperformed broad dollar strength in global markets.

Prior to market opening, the People’s Bank of China (PBOC) set the midpoint rate at 6.8821 per dollar, 85 pips firmer than the previous fix of 6.8906.

But Thursday marks the seventh consecutive trading day on which the central bank has lifted the official fixing by more than market projections, traders and analysts said. It was also 89 pips stronger than a Reuters estimate of 6.8910.

“Recent stronger-than-expected yuan fixings are a clear signal from the Chinese authorities of their intent to dampen depreciation pressure,” said Khoon Goh, head of Asia research at ANZ.

China’s yuan falls past key 6.9/dlr threshold

“With the 20th National Congress of the Chinese Communist Party commencing on Oct. 16, and given the economic and geopolitical challenges that the government faces, we believe that the authorities will want to ensure exchange rate stability in the lead-up to the event.”

In the spot market, the onshore yuan opened at 6.9108 per dollar and was changing hands at 6.9054 at midday, 136 pips weaker than the previous late session close.

The slight weakness was a reaction to the dollar rally in overseas markets, traders said, noting investors had refrained from testing lows in the Chinese currency because the authorities seemed to have shown discomfort over the pace of yuan declines.

The Chinese currency lost about 2.2% against the dollar in August, booking its worst monthly performance since April and pressured by a buoyant dollar, domestic economic slowdown and market expectations of aggressive US interest rate rises.

Expectations for another 75-basis-point US rate hike at Federal Reserve’s September meeting are rising on the back of solid economic data, with Fed funds futures last pointing to a 75% chance of such an increase.

“Some appropriate yuan depreciation within a controllable range is good for exports,” Wang Tao, chief China economist at UBS, told reporters.

Wang expects the yuan to breach the psychologically critical level of 7 per dollar sometime in the remainder of this year before finishing at around its current 6.9 at the end of December.

By midday, the global dollar index had risen to 109.078 from the previous close of 108.7, while the offshore yuan was trading at 6.9178 per dollar.