China’s yuan firms up after nearing key 7 level

SHANGHAI: China’s yuan strengthened against the US dollar on Thursday, as traders said exporters were eager to convert dollars into the local currency after the pair approached the psychologically important 7 mark.

The onshore spot yuan opened at 6.9960 per dollar following a weaker official fix, nearly slipping to 7 before rebounding to 6.9790, near a 32-month high. It was last at 6.9879 as of 0257 GMT, 38 pips firmer than the previous late session close.

Prior to the market’s opening, the People’s Bank of China set its midpoint rate at 7.0197 per dollar, 271 pips weaker than a Reuters estimate.

The spot yuan is allowed to trade 2% on either side of the fixed midpoint each day.

Analysts at Nanhua Futures advised exporters to lock in forward dollar sales near 7.02 in batches to guard against potential profit erosion, while importers were encouraged to adopt a rolling dollar purchase strategy around the 6.96 level.

Exporters usually convert more of their foreign exchange receipts into the local currency towards the end of the year to make various payments covering administrative requirements and disbursements to employees.

Meanwhile, the bullish sentiment in the equity market, which pushed the benchmark Shanghai Composite Index to a fresh decade-high on Thursday, is also lending support to the Chinese currency.

The latest appreciation of China’s yuan is expected to have further room to run in both duration and magnitude, which will significantly enhance the attractiveness of core Chinese assets and encourage overseas funds to step up allocations, analysts at Founder Securities said in a note.

The dollar was calm on Thursday as investors weighed a slew of data that showed the US economy was in a delicate position ahead of a crucial jobs report on Friday, with rising geopolitical tensions keeping sentiment in check.

The offshore yuan traded at 6.9853 yuan per dollar, up about 0.13% in Asian trade.