SHANGHAI: China’s yuan held steady near a key threshold on Wednesday, as broad dollar strength was offset by persistently firmer-than-expected guidance by the central bank.
The greenback gained ground as the yen weakened following the Bank of Japan’s decision a day earlier to raise interest rate but maintain an accommodative monetary policy stance.
The yuan, however, was little moved thanks to the Chinese central bank’s months-long practice of setting the rate at levels firmer than market projections as it attempts to keep the currency stable.
Prior to market opening, the People’s Bank of China set the midpoint rate, around which the yuan is allowed to trade in a 2% band, at 7.0968 per dollar, 17 pips firmer than the previous fix of 7.0985.
Wednesday’s midpoint was 999 pips firmer than a Reuters estimate of 7.1967.
In the spot market, the onshore yuan opened at 7.1962 per dollar and was changing hands at 7.1993 at midday. That was 3 pips firmer than the previous late session close, and within striking distance of the psychologically important 7.2 per dollar level.
Currency traders said the key threshold offered strong support for the yuan.
“We argue that the PBOC’s CNY fixing policy support, which effectively capped the onshore yuan below 7.2 level, will likely constrain further upside for USD/CNH,” said Ken Cheung, chief Asian FX strategist at Mizuho Bank.
The market also shrugged off China’s widely-expected decision to keep benchmark lending loan prime rates (LPRs) unchanged at a monthly fixing earlier in the session.
By midday, the global dollar index rose to 103.84 from the previous close of 103.594, while the offshore yuan was trading at 7.2105 per dollar.
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