SHANGHAI: The Chinese yuan edged up on Wednesday from a 13-month low against the dollar following firmer guidance by the central bank, interpreted by markets as a sign of rising unease over its recent rapid declines.
The yuan has faced renewed depreciation pressure from President-elect Donald Trump’s tariff threats and monetary policy divergence between China and the United States.
The offshore yuan breached the psychologically important 7.3 per dollar level on Tuesday, hitting its weakest since November 2023.
Its onshore counterpart also traded near the key threshold.
Prior to market opening on Wednesday, the People’s Bank of China (PBOC) set the midpoint rate, around which the yuan is allowed to trade in a 2% band, at 7.1934 per dollar, and 887 pips firmer than a Reuters’ estimate of 7.2821.
Market participants usually use the discrepancy between the official fixings and market projections to gauge the authorities’ stance on FX policy.
Wednesday’s gap was the widest since the central bank started to set firmer-than-expected guidance in mid-November, with investors and analysts believing it was meant to keep the currency stable.
“While the Chinese authorities have been leaning actively against RMB depreciation by holding the USD/CNY daily fixing below 7.20 for the last three weeks, a resurgence of trade tensions with the US would raise market jitters,” said Chang Wei Liang, FX and credit strategist at DBS.
China’s offshore yuan slips to lowest level in over a year
By 0313 GMT, the onshore yuan was 0.08% firmer at 7.2810 to the dollar after hitting a trough of 7.2996 a day earlier, which was the weakest since Nov. 3, 2023.
Its offshore counterpart also rebounded to trade at 7.2922 yuan per dollar around midday.
“However, the path of least resistance could remain to the upside,” Maybank analysts said in a note, referring to the trajectory for dollar/yuan.
“Notwithstanding two-way swivels, the uptrend remains intact towards 7.37.”
China escalated trade tensions on Tuesday by banning exports to the United States of gallium, germanium, and antimony, minerals with critical military applications.
The move came a day after Washington’s latest crackdown on China’s chip sector.
Currency traders are now turning their attention to Beijing’s Central Economic Work Conference later this month where top leaders will set economic growth targets and plan the agenda for next year.
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