SHANGHAI: China’s yuan was little moved on Tuesday, after the central bank set the official guidance rate at its widest against market estimates while offshore funding continued to be tight.
The central bank was making a determined effort to bolster the yuan before the long holiday by pinning the fixing rate near 7.173 level, said Ken Cheung Kin Tai, chief Asian FX strategist at Mizuho Bank.
Prior to the market’s opening, the People’s Bank of China (PBOC) set the midpoint rate, around which the yuan is allowed to trade in a 2% band, at 7.1727 per US dollar. That was 1,447 pips stronger than Reuters’ estimate, the largest deviation from market projections on record.
Tuesday’s midpoint matched the same level the day before.
The firm midpoint also drove the yuan’s value against its trading partners to 98.78, the highest since May 18.
Spot yuan opened at 7.3040 per dollar and was changing hands at 7.3103 at midday, roughly flat with the previous late session close.
The offshore yuan was trading 13 pips stronger than the onshore spot at 7.309 per dollar.
High funding cost outside the mainland continued to support offshore yuan, keeping it from sliding further. Offshore yuan’s overnight Hong Kong Interbank Offered Rate (HIBOR) rose to 5.20530% on Tuesday, the strongest since April 2022.
The elevated cost of borrowing offshore yuan erodes the carry advantage of long dollar against yuan trades, Maybank analysts said in a note.
Market participants continue to scrutinise Chinese data for any improvements to gauge the pace of economic recovery that could help put a floor under the sliding yuan.
The currency has lost 5.6% against the dollar so far this year.
The global dollar index rose to 106.055 from the previous close of 105.998.
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