HONG KONG: China’s yuan firmed on Thursday, buoyed by the central bank’s move to relax a cross-border financing rule that allows corporations to raise funds overseas, alongside the sale of dollars by state-owned banks.
The People’s Bank of China said in a statement on Thursday that it raised a parameter on cross-border corporate financing under its macro-prudential assessments to 1.5 from 1.25, effective immediately.
The move, which will allow companies to borrow more offshore, is likely to boost dollar funding onshore and effectively discourage companies from buying dollars and selling the yuan in the onshore spot market, Citi analysts said in a client note on Thursday.
The yuan also found support as China’s major state-owned banks were seen selling dollars to buy yuan in the offshore spot market in early Asian trades on Thursday, two people with direct knowledge of the matter said.
“We think authorities are taking a harder stance against rapid yuan weakness, especially in the lead-up to the Politburo meeting next week where a potential fiscal stimulus package could be announced,” said Alex Loo, macro strategist at TD Securities.
Since the beginning of the year, the yuan has weakened 3.9% against the dollar.
On Thursday, spot yuan opened at 7.1862 per dollar and was changing hands at 7.1816 at midday, 424 pips stronger than the previous late session close.
China’s yuan weakens past key threshold to one-week low on heavy dollar demand
The yuan was 0.49% weaker than the day’s midpoint rate , however, which the People’s Bank of China set at 7.1466 per US dollar prior to the market open. That was firmer than the previous fix of 7.1486 and more than 700 pips stronger than market estimates.
The spot rate is currently allowed to trade within a range 2% above or below the official fixing on any given day.
Thursday’s fixing was the strongest since the central bank began in late June to routinely set midpoints that were stronger than expected.
The global dollar index fell to 100.066 on Thursday from the previous close of 100.281.
Offshore yuan was trading 0.03% weaker than onshore spot at 7.1837 per dollar.
The one-year forward value of the offshore yuan was at 6.9686 per dollar, indicating roughly 3.09% appreciation within 12 months.