Yuan nears 33-month high on stronger fixing, settlement demand

HONG KONG: China’s yuan firmed on Tuesday near a 33-month peak against the dollar, boosted by seasonal settlement demand, while the central bank signalled a preference for gradual appreciation.

 The yuan stood 0.06% higher against the dollar by 03:05 GMT, off an earlier figure of 6.9378, which was its strongest since May 11, 2023. The offshore yuan traded at 6.937 yuan per dollar, up about 0.08% in Asian trade.

“The upcoming spring festival holiday, combined with a weak dollar trend and seasonal demand for currency settlement, are continuing to support the yuan,” analysts at PinAn Bank said in a note.

 Corporate clients have begun gradually converting stockpiled dollar funds, showing a greater willingness to settle foreign exchange, they added.

“This is expected to create a reinforcing effect that will continue supporting the yuan’s strong performance.”

 Prior to the market opening, the People’s Bank of China set the midpoint rate at 6.9608 per dollar, its strongest since May 16, 2023, and 10 pips weaker than a Reuters estimate.

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

The central bank has been setting the midpoint lower after breaking below 7.00 in January, with the gap with market projections narrowing, a clear tool to convey policymakers’ preference for yuan appreciation, according to OCBC analysts.

“Policymakers are likely to still pursue an orderly and measured pace of RMB appreciation,” they wrote in a note, moving to prevent markets from rushing to offload USD in a disorderly manner, and to ensure orderly market dynamics.

 Elsewhere, the dollar’s six-currency index held gains on Tuesday, as positive economic readings and shifting expectations for Federal Reserve policy outweighed concerns about another US government shutdown.