SHANGHAI: China’s yuan hovered around a four-month high against the dollar on Thursday, supported by a firmer midpoint fixing, as market participants interpreted it as a persistent official attempt to nudge the local currency higher.
Trading was tepid, however, as some overseas markets are shut for the Thanksgiving holiday on Thursday. And yuan traders said the local currency was mostly anchored by the official midpoint in the absence of external guidance.
Prior to market opening, the People’s Bank of China (PBOC) set the midpoint rate, around which the yuan is allowed to trade in a 2% band, at a more than five-month high of 7.1212 per dollar, 42 pips firmer than the previous fix of 7.1254.
The central bank continued to set daily official guidance at levels firmer than market projections, but the gap has shrunk from a high of more than 1,500 pips earlier this month. On Thursday, the official midpoint was 300 pips stronger than Reuters estimate of 7.1512.
“As the deviation gap narrows and the fixing mechanism normalises, we reckon there is also more two-way trades for the yuan,” analysts at Maybank said in a note.
In the spot market, the onshore yuan opened at 7.1552 per dollar and was changing hands at 7.1446 at midday, 204 pips stronger than the previous late session close.
China’s yuan set for best week in 2 months
And it was not far from the four-month high of 7.1256 hit earlier this week.
“The authorities have been taking advantage of dollar weakness to guide the daily fixing stronger,” said Khoon Goh, head of Asia research at ANZ.
“With exporters having accumulated a lot of foreign currency receipts, we are likely seeing these getting converted, with more likely to come. Next major technical level is at 7.10, which will be reached if there is further dollar weakness.”
Such conversions supported the yuan, and traders and analysts also pointed out that seasonal yuan demand should also pick up as exporters traditionally convert more of their FX receipts in the yuan for various payments, including year-end bonus handouts, in the run up to the year-end.
By midday, the global dollar index stood at 103.746, while the offshore yuan was trading at 7.15 per dollar.