Yuan recovers from one-week low on strong official fix

SHANGHAI: China’s yuan firmed against the US dollar on Friday after hitting a one-week low overnight, supported by a strong official fixing that traders saw as a signal that the central bank wants to stabilise the currency.

Before the market opening, the People’s Bank of China set the midpoint rate at 7.0875 per dollar, 279 pips firmer than a Reuters’ estimate. The monetary authority allows the spot yuan to trade 2% either side of the fixed midpoint each day.

Maybank analysts said the direction of the fixing has been more in line with the broader dollar trend lately, adding that they expect the offshore yuan to strengthen to 7.07 per dollar by year’s end.

 The onshore yuan dipped on Thursday to its weakest level since November 12 as the dollar rallied following a confounding US jobs report.

Employment growth accelerated at the same time as the jobless rate rose to a four-year high in September, reinforcing the market’s view that the Federal Reserve is likely to forgo an interest rate cut next month.

The spot yuan opened at 7.1133 per dollar and was last trading 56 pips firmer than the previous late session close and 0.35% weaker than the midpoint.

Talk of an undervalued yuan has resurfaced in global markets, with some traders expecting a sharp appreciation, said analysts at BOC International led by Guan Tao. “However, whether from a theoretical perspective or based on price signals, it is hard to argue that the yuan is undervalued.”

China needs to further improve its exchange-rate formation mechanism, maintain flexibility and guard against trade protectionism driven by claims of yuan undervaluation, the analysts said.

 The offshore yuan traded at 7.1147 yuan per dollar, up about 0.05% in Asian trade.

The dollar index, which measures the greenback against six major currencies, was 0.010% lower at 100.15, but remains on track for its best week in over a month.