SHANGHAI/BEIJING: China’s yuan inched higher against the dollar on Thursday, supported by positive investor sentiment on a report that more stimulus could be rolled out to arrest a slowdown in the world’s second largest economy.
The Chinese currency gained after Bloomberg News reported that Beijing was considering injecting up to 1 trillion yuan of capital into its biggest state banks to increase their capacity to support the struggling economy.
Such a move would be the first time since the global financial crisis in 2008 that Beijing has injected capital into its big banks.
As of 0258 GMT, the yuan was 0.2% higher at 7.0200 to the dollar, while its offshore counterpart followed the strengthening trend to 7.0163.
Prior to the 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 7.0354 per dollar, and 13 pips firmer than a Reuters’ estimate of 7.0367.
China’s yuan has gained about 0.6% against the dollar this week as Beijing unveiled its biggest stimulus since the pandemic to pull the economy out of its deflationary funk and back towards the government’s growth target.
Despite the offshore unit briefly crossing the psychologically important 7-per-dollar level on Wednesday, many market participants do not expect the yuan to breach the key threshold before the week-long National Day holiday next week.
China’s yuan briefly crosses key 7 per dollar as market cheers stimulus
China’s major state-owned banks were seen actively buying dollars and selling yuan onshore this week to prevent the Chinese unit from strengthening too fast and too far, people with knowledge of the matter said.
They were likely controlling the pace of yuan appreciation, said one of the sources.
“Against the prospect of more Federal Reserve cuts amid China’s policy support for its economy and markets, the onshore yuan has scope to play catch-up to the recovery in Asian currencies,” Philip Wee, senior FX strategist at DBS, said in a note.
“We see USD/CNY and DXY eventually breaking below their psychological 7.00 and 100 levels, respectively.”
And, Goldman Sachs revised its yuan forecasts higher to 7.15 per dollar, 7.25 and 7.25 in three, six and 12-month horizons, respectively, from 7.35, 7.40 and 7.40, according to its note to clients published on Wednesday.
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