China’s yuan briefly hits near 33-month high, but PBOC fix signals caution over rapid gains

SHANGHAI: China’s yuan briefly hit a near 33-month high against the dollar on Wednesday underpinned by firmer central bank guidance, though the fix was weaker than anticipated and viewed by investors as an attempt to keep the currency’s gains in check.

Booming exports are pushing up China’s currency and while analysts think authorities will resist further gains, risks are to the upside and could test the country’s fragile economy.

Before the market opened, the People’s Bank of China (PBOC) set the midpoint at 6.9533 per US dollar, the strongest setting since May 16, 2023, but 148 pips weaker than a Reuters estimate of 6.9385.

The weaker-than-expected fix was “a sign that there could be some attempt to rein in the yuan strength,” Maybank analysts said in a note.

Based on Wednesday’s midpoint fixing, the yuan’s value against its major trading partners, as measured by the yuan CFETS index, rose to 97.93, its highest since January 23, but remained down 0.06% year-to-date.

“China’s exceptionally robust export and substantial trade surplus have indeed created the possibility for policy adjustments in a different direction, the so-called ‘external rebalancing,’” said Zhang Ning, senior China economist at UBS.

Zhang expects the rebalancing to result in a “mild appreciation” in the yuan’s trade-weighted value this year.

In the spot market, the onshore yuan rose to a high of 6.9310 per dollar, the strongest level since May 11, 2023, before trimming gains to trade at 6.9377 as of 0402 GMT.

Its offshore counterpart was down about 0.01% in Asian trade to 6.9346 per dollar as of 0402 GMT.

  Major state-owned banks continued buying dollars in morning deals in the spot market, multiple traders with knowledge of the matter said, viewing it as a move to slow the pace of yuan strengthening.

“The narrative for yuan appreciation from influential policy (commentators) and experts is building,” analysts at BofA Global Research said in a note.

“However, the latest and most important signal comes from President Xi’s comments reported in this weekend’s press that China should build a ‘powerful currency’ that could be ‘widely used in international trade, investment and foreign exchange markets, and attain reserve currency status.’”

 They revised their year-end forecast for the yuan to trade at 6.7 per dollar from 6.8 in a previous prediction, making it one of the most bullish forecasts among 13 global investment banks.