SHANGHAI: The yuan rebounded slightly on Tuesday as the surging dollar paused and China’s central bank stepped up support, but the currency remained near 16-month lows as nervous markets awaited Donald Trump’s inauguration as US president next week.
Trump has threatened sharply higher tariffs on Chinese goods, potentially hurting its exports and putting further depreciation pressure on the yuan.
The yuan changed hands at 7.33 per dollar around the lunch break, a tad stronger than Monday’s close, after the People’s Bank of China (PBOC) set the daily guidance rate 1,283 pips firmer than Reuters estimate.
Other recent moves by the PBOC to arrest the yuan’s slide include allowing companies to borrow more from abroad, suspending bond buying to slow rapid falls in yields, and ramping up yuan bill issuance in Hong Kong.
Also aiding the yuan’s bounce on Tuesday, the dollar index dipped 0.3%. It has surged since Trump won the election.
Yuan steadies near 16-month low as PBOC announces record bill sales in HK
The offshore yuan strengthened 0.07% to 7.3436 per dollar, after PBOC Governor Pan Gongsheng on Monday vowed to maintain currency stability and substantially increase the proportion of China’s foreign exchange reserves in Hong Kong.
Nanhua Futures said in a note on Tuesday that although authorities have sent a slew of signals to try to stabilize the yuan, “the currency’s trend may not change, in the backdrop of China’s rate discount to the US and a still-weak domestic economy.”
Commenting on the PBOC’s move on Monday to raise offshore borrowing limit for companies - designed to increase dollar supply in the onshore market - the brokerage said companies may be reluctant to borrow due to higher U.S rates, thus undercutting effectiveness of the measures.
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