HONG KONG: China’s yuan firmed on Tuesday, after the central bank set the daily fixing stronger than market expectations for the second day in a row, bolstering speculation authorities were becoming less tolerant of the currency’s weakness.
The People’s Bank of China set the midpoint rate at 7.2098 per US dollar prior to market open, weaker than the previous fix 7.2056, but nearly 100 pips stronger than Reuters’ consensus estimates.
Tuesday’s fixing was the biggest upward deviation that the PBOC has made since May when the current selloff began, analysts said.
“After two consecutive days of sizeable deviation in the fixing, it appears to be a signal that the PBOC is pushing back more strongly,” said Alvin Tan, head of Asia currency strategy at RBC Capital Markets.
The spot yuan opened at 7.2400 per dollar and was changing hands at 7.2180 in early trade, 245 pips stronger than the previous late session close and 0.11% weaker than the midpoint.
The spot rate is currently allowed to trade with a range 2% above or below the official fixing on any given day.
China’s yuan weakens; central bank’s surprise fixing keep trading in tight range
“The fixings suggest some low but rising discomfort with the pace of depreciation, and may help to slow the (yuan fall) from there,” said Citi in a note on Tuesday.
The yuan has been weighed down by China’s faltering economic growth and the wide interest rate differential between the US and China.
While China has eased some monetary settings, analysts said modest interest cuts alone would have limited impact in stimulating weak household demand without fiscal support measures.
The global dollar index fell to 102.573 from the previous close of 102.692.
The offshore yuan was trading 0.07% weaker than the onshore spot at 7.2227 per dollar.
The one-year forward value for the offshore yuan traded at 7.0112 per dollar, indicating a roughly 3.02% appreciation within 12 months.
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