HONG KONG: China’s yuan inched higher against the dollar on Wednesday after the central bank set the daily fixing higher-than-expected and as investors bided time ahead of a widely-awaited speech by the Federal Reserve chief later in the week.
The People’s Bank of China (PBOC) set the midpoint rate, around which the yuan is allowed to trade in a 2% band, at 7.1988 per US dollar prior to market open, firmer than the previous fix at 7.1992 and over 1,000 pips stronger than market projections.
The spot yuan opened at 7.2870 per dollar and was changing hands at 7.2925 at midday, 15 pips stronger than the previous late session close and 1.30% weaker than the midpoint.
Wednesday was the third time that the daily fixing was set at a deviation of over 1,000 pips from Reuters’ estimates since the PBOC began setting firmer daily guidance in late June.
“The PBOC is intent on keeping the spot yuan at the current level through the stronger daily fixing as a way to win more time for authorities to roll out growth supportive measures, and shore up the ailing property sector,” said Ju Wang, head of greater China FX & rates strategy at BNP Paribas.
“The key now is for China to deliver these stimulus measures as soon as possible,” said Wang.
The yuan, down 2% this month and over 5% this year, has been under pressure due to concerns over a crisis in the property sector, which accounts for a quarter of China’s economy.
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Further weighing on the currency is the country’s sputtering economy and China’s widening yield spreads with the US which reached the widest in 16-year this week.
The PBOC’s surprising decision on Monday to keep the key mortgage pricing benchmark, the five-year loan prime rate, unchanged and delivering a smaller-than-expected cut on the one-year rate disappointed investors.
The offshore yuan was trading 0.10% weaker than the onshore spot at 7.2996 per dollar.
The dollar index fell to 103.506 from the previous close of 103.563.
Investors are closely watching the central bank symposium at Jackson Hole, Wyoming slated for Aug. 24-26, when Fed Chair Jerome Powell is due to give a speech which could provide clues on the monetary policy outlook.
Markets have gravitated toward expecting US rates to stay higher for longer amid a recent batch of upbeat economic data.
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 7.0815, 1.66% away from the midpoint.
One-year NDFs are settled against the midpoint, not the spot rate.
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