Yuan hits fresh 3-1/2-year high despite PBOC's weak guidance
- The offshore yuan traded at 6.7113 yuan per dollar, down about 0.05% in Asian trade
China's yuan strengthened to a 3-1/2-year high against the dollar, defying the central bank's weaker guidance as demand for the greenback remained subdued, with officials managing its appreciation pace.
- Central bank's yuan appreciation management.
- Chinese banks' efforts to temper yuan gains.
- US inflation report and Fed rate hike expectations.
HONG KONG: China’s yuan strengthened to a 3-1/2-year high against the dollar on Monday, defying a near-record weak-side gap in the central bank’s daily midpoint guidance as demand for the greenback remained subdued.
The yuan strengthened to a high of 6.7050 per dollar in early trades, its strongest level since February 2023, before retreating to 6.7125.
The offshore yuan traded at 6.7113 yuan per dollar, down about 0.05% in Asian trade.
Prior to the market opening, the People’s Bank of China set the midpoint rate at 6.7795 per dollar.
That comes in 709 pips weaker than a Reuters’ estimate, the largest weak side deviation since a record seen in February this year.
The central bank has been gradually strengthening its daily yuan official guidance, but at levels weaker than market expectations, suggesting it wants to manages the pace of appreciation, traders and analysts said.
The spot yuan is allowed to trade 2% either side of the fixed midpoint each day.
“CNY remains one of the region’s most resilient currencies, but its strength is drawing greater official attention, reflected in the widening counter-cyclical factor in daily USD/CNY fixings,” said Geoff Yu, senior EMEA market strategist at BNY.
Flow data also showed that positions have moved further into underweight territory as the pace of yuan appreciation slows, he added.
Chinese banks have been lifting dollar deposit rates and buying US Treasuries over the past few months, moves that could help slow gains in the yuan and which come amid a spike in US yields, Reuters reported.
The dollar’s six-currency index was little changed at 99.17, as traders awaited the inflation report this week for more clues on the Federal Reserve’s rate path after a strong non-farm payroll reading on Friday.
“The labor market rebound raised expectations of a September Fed rate hike, though the upcoming August CPI report will likely determine whether it goes ahead,” analysts at Orient Securities said in a note.
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