SHANGHAI: China’s yuan firmed on Friday against the US dollar after the country’s central bank kicked off two funding schemes to help lift the stock market.
China’s central bank started swap and relending schemes that will initially pump 800 billion yuan ($112.38 billion) into the stock market through newly-created monetary policy tools.
The onshore and offshore yuan each strengthened as much as 100 pips on the regulator’s statements, though some of the gains were reversed approaching midday.
China’s stock market sentiment has been a gauge for currency traders over the past month, also reflecting how the market views the recently announced economic stimulus plans.
The equity momentum cooled over the past week, after a frenzied rally since late last month when a series of rate cuts and announcements raised expectations of a major government effort to bolster lacklustre economic growth.
The world’s second-largest economy grew 4.6% in the third quarter, official data showed, slightly beating expectations but at the slowest pace since early 2023. The offshore yuan firmed below 7.13 per dollar on the data release, but gains were small and were quickly reversed.
The offshore yuan traded at 7.1292 yuan per dollar, up about 0.11% in Asian trade.
China’s yuan briefly crosses key 7 per dollar as market cheers stimulus
The spot yuan opened at 7.1196 per dollar and was last trading 38 pips firmer than the previous late session close at 7.1197 as of 0324 GMT.
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 7.1274 per dollar.
Ahead of the US election on Nov. 5 where Republican Donald Trump will face off against Democratic candidate Kamala Harris, market participants are focused on whether the yuan will depreciate against the dollar.
“Remind that USDCNH higher is one of our favorite US election plays but that buying USDCNH dips could be more attractive than chasing the pair higher at these levels,” said Citi traders. The yuan is down 1.4% against the dollar this month, and 0.2% weaker this year.
“We see the recent upmove (in USDCNH) to be a reflection of the rise in support for Trump based on bookmakers (Polymarket, PredictIT) even though Harris still seems to retain a tight lead over Trump,” Maybank analysts said in a note.
The dollar’s six-currency index was 0.087% lower at 103.69.
The PBOC chief flagged more interest rate cuts and room for a reserve requirement ratio cut, most of which are already expected by the market.
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