SHANGHAI: China’s yuan held steady against a buoyant dollar on Thursday, underpinned by a persistently stronger-than-expected official guidance fix, while trading was thin and tepid ahead of the week-long National Day holiday.
Prior to the market 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 7.1798 per dollar, the weakest since Sept. 14. That is down 81 pips than the previous fix of 7.1717.
However, the central bank continued its months-long effort in setting firmer-than-expected yuan midpoint fixing, a move that traders and analysts interpreted as a sign of rising discomfort over rapid yuan losses.
And Thursday’s official midpoint fixing was 1,441 pips firmer than Reuters estimate of 7.3239, marking the second largest deviation on record.
The firmer-than-expected midpoint has also lifted the yuan’s value against its major trading partners, with the CFETS basket index, a gauge that measures the yuan’s strength versus a basket of currencies, hitting a five-month high of 99.55, up 0.89% so far this year.
The spot yuan has lost more than 5% to the dollar during the same period.
In the spot market, the onshore yuan opened at 7.3050 per dollar and was changing hands at 7.3113 at midday, 17 pips firmer than the previous late session close.
The holiday shortened week has dampened trading interests, traders said. The spot yuan swung in a very tight range of 80 pips in morning deals, while turnover shrunk to $5.5 billion as of midday, down from a typical half-day volume of about $15 billion.
“A lot of market participants and investors have already gone on holiday, and trading interest is very tepid,” said a trader at a foreign bank.
Chinese domestic financial markets will be closed for the Mid-Autumn Festival and National Day holiday from Friday, and trading will resume on Oct. 9.
“Focus this week (is) on China PMIs – out on weekend while China’s extended golden week holidays suggests that market liquidity should thin further,” Christopher Wong, FX strategist at OCBC Bank, said in a note.
China is due to release its September factory activity data on Saturday, and many traders said they will pay close attention to the data to gauge the health of the world’s second-largest economy.
By midday, the global dollar index rose to 106.686 from the previous close of 106.666, while the offshore yuan was trading at 7.3156 per dollar.
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