SHANGHAI: China’s yuan held steady against the dollar on Wednesday as the country’s central bank continued to lend support via a strong midpoint fixing, but analysts did not expect it to appreciate much further in the medium-term.
The yuan was little moved on Wednesday after firming sharply for the past three days.
The yuan has gained 2.1% in a little over one week, amid US dollar weakness and persistently strong yuan daily midpoint fixings.
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 7.1254 per US, 152 pips firmer than the previous fix 7.1406 and the firmest level in five months.
Given Tuesday’s stronger-than-expected fixing, the market was less surprised with the rate on Wednesday.
The gap between Wednesday’s fixing and Reuters’ estimate was just over 200 pips, down from 800 pips a week ago, meaning supplies and demand for the yuan have become more balanced.
The spot yuan opened at 7.1357 per dollar and was changing hands at 7.1386 at midday, 14 pips firmer than the previous late session close.
While the PBOC may welcome the recent strength in the yuan against the dollar, policymakers are believed to prefer a weaker yuan over the medium-term to support exports, and markets don’t expect the yuan to strengthen much, said Alex Lo, FX and macro strategist at TD Securities.
Lo thinks the onshore yuan may trade towards the 7.1-level, which is the 200-day moving average, since the 7.1-7.35 range has held up well in the second half of this year.
China’s yuan set for best week in 2 months
China’s major state-owned banks were seen exchanging yuan for US dollars in the onshore swap market and selling those dollars in spot currency markets this week, two sources told Reuters on Tuesday.
The global dollar index fell to 103.531 from the previous close of 103.565.
The offshore yuan was trading closely with the onshore spot at 7.1388 per dollar.
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