SHANGHAI: China’s yuan steadied near a 16-month low against the dollar on Thursday, though closer to the weaker end of its trading band, as the central bank announced a record amount of offshore yuan bill sales to support the currency.
The People’s Bank of China (PBOC) said earlier in the day it will sell 60 billion yuan ($8.18 billion) worth of six-month yuan bills in Hong Kong on Jan. 15, the most since the central bank started such bill sales in the financial hub in 2018.
Selling these yuan bills will mop up liquidity in the market to reduce speculation betting against the yuan.
Yuan eases to 16-month low, pressured by strong dollar
The central bank is trying to tighten the offshore yuan liquidity to stabilise the currency, which is facing renewed depreciation pressures from a broadly stronger greenback, falling Chinese yields and rising trade tensions with other economies.
State-owned news outlet Yicai reported earlier this week, citing sources close to the central bank, that the PBOC will ramp up offshore yuan bill sales in Hong Kong in January.
As of 0229 GMT, the onshore yuan traded 0.01% firmer at 7.3310 per dollar, but was 14 pips away from hitting the weaker end of the daily trading band set by the midpoint fixing.
It was not far from the 16-month low of 7.3322 hit a day earlier.
Its offshore counterpart traded at 7.348 yuan per dollar, up about 0.07% in Asian trade.
Prior to the market opening, the PBOC set the midpoint rate, around which the yuan is allowed to trade in a 2% band, at 7.1886 per dollar, 1,273 pips firmer than a Reuters estimate of 7.3159.
Kiyong Seong, lead Asia macro strategist at Societe Generale CIB, said the PBOC appeared to take a mixed tactic to stabilise the yuan by setting steady midpoint fixing guidance and squeezing offshore yuan liquidity to “tighten the CNY-CNH basis and put downward pressure on USD/CNY.”
Thursday’s midpoint fixing “suggested that the PBOC tried to mitigate depreciation pressure,” Seong said.
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