SHANGHAI: China’s yuan held steady on Wednesday, as China’s central bank set the mid-point guidance rate with the strongest bias so far this year, while October’s factory activity indicated economic weakness and further pressure on the yuan.
China’s official yuan midpoint fixing came in 1,549 pips stronger than Reuters’ estimate of 7.3327 per dollar, the biggest discrepancy so far this year.
Citi’s currency traders view the onshore yuan fixing rate as the central bank’s primary channel for implementing its currency management policy now, as offshore yuan funding has softened and bond inflows to China have slowed due to high funding costs.
Meanwhile, a private survey showed that China’s factory activity unexpectedly contracted in October, indicating economic weakness and raising expectations of monetary easing, which will add further pressure on the yuan.
Prior to the market’s opening, the People’s Bank of China set the midpoint rate around which the yuan is allowed to trade in a 2% band, at 7.1778 per US dollar, only 1 pip firmer than the previous fix 7.1779.
The spot yuan opened at 7.3139 per dollar and was changing hands at 7.3185 at midday, 19 pips weaker than the previous late session close and 1.96% away from the midpoint.
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The spot rate is currently allowed to trade within a range 2% above or below the official fixing on any given day.
In the offshore market, overnight yuan HIBOR, a key measure of liquidity, is now trading at 1.24%, dropping from 4.8% just a week ago.
The offshore yuan overnight HIBOR typically trades around 1-3%.
The offshore yuan was trading 155 pips weaker than the onshore spot at 7.334 per dollar.
The global dollar index rose to 106.727 from the previous close of 106.663.
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