SHANGHAI: China’s yuan eased against a strengthening dollar on Thursday, but the losses were limited as the central bank continued to use the official guidance fix to keep the currency stable.
The dollar index, measuring its value against a basket of other major currencies hovered near a one-week high as US Treasury yields rose.
But the People’s Bank of China (PBOC) set the midpoint rate , around which the yuan is allowed to trade in a 2% band, at 7.1784 per dollar, virtually unchanged from the previous fix, and 1,481 pips firmer than Reuters estimates.
Traders and analysts interpreted the strong bias at the fix as an official attempt to stem a rapid depreciation in the yuan, as the PBOC has kep up this strategy for months.
The stable official midpoint pushed the yuan’s value higher against a basket of currencies, as the Chinese currency had lost less ground against the dollar than other currencies.
The trade-weighted CFETS yuan basket index rose to a week-high of 99.56, and is up 0.9% year-to-date, whereas the spot yuan lost 5.7% against the dollar during the same period.
In the spot market, the onshore yuan opened at 7.3148 per dollar and was changing hands at 7.3183 at midday, 18 pips weaker than the previous late session close.
China’s yuan slips as dollar strength offsets Beijing’s fiscal stimulus
Traders said the broad yuan weakness in the spot trades was tracking higher Treasury yields and the dollar’s movements in global markets.
But the onshore yuan was about 40 pips from hitting the lower end of the daily band, discouraging many market participants from testing lows in the yuan.
“USD/CNH has remained little changed around 7.33, with the CNY fixing stuck at 7.17 since mid-Sep. Nevertheless, better RMB sentiment can be observed in the options market, where risk reversals have turned less bearish on the RMB over the medium term, in line with our view,” Chang Wei Liang, FX & credit strategist at DBS, said in a note.
“Admittedly, growth concerns have not dissipated with news of a default by another mega Chinese developer this week, but there is little risk of contagion to the Chinese financial sector, while the property markets in tier 1 cities are also showing a turnaround.”
China’s top parliament body this week approved a 1 trillion yuan sovereign bond issuance and passed a bill to allow local governments to frontload part of their 2024 bond quotas, in a move to support the economy.
By midday, the global dollar index rose to 106.76 from the previous close of 106.528, while the offshore yuan was trading at 7.3285 per dollar.
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