SHANGHAI: China’s yuan rebounded from a 10-day low against the dollar, as the local currency got a helping hand from Tuesday’s steady fixing of the benchmark lending rate and corporate demand.
Prior to market opening, the People’s Bank of China (PBOC) set the midpoint rate at 6.4855 per dollar, 155 pips or 0.24% weaker than the previous fix of 6.4700, the weakest since May 6.
The spot market bounced from a 10-day low of 6.4915 per dollar hit on Monday and traded at 6.4870 by midday, 35 pips firmer than the previous late session close.
Traders said robust corporate demand for the yuan as it weakened towards the psychologically important 6.5 per dollar level offset broad safe-haven driven strength in the US currency.
As the Delta variant of the coronavirus wreaks havoc across many countries, Carie Li, economist at OCBC Wing Hang bank, said risk aversion could further lift the dollar in the short term.
“Subsequently, if data supports normalisation in US Federal Reserve policy, the dollar index may remain strong,” Li said in a note.
“If the dollar index rises past 93, or even to the year-to-date’s high of 93.5, we will see if the yuan can hold the 6.50 mark against the US dollar.” The slight strength in the yuan was also underpinned by China’s decision to keep its benchmark lending rate for corporate and household loans unchanged this month, despite growing expectations for a cut after a surprise lowering of bank reserve requirements.
The yuan’s value against its major trading partners, as measured by the China Foreign Exchange Trade System (CFETS) index, surged to 98.46 on Tuesday, the highest since March 2016, according to Reuters’ calculations based on official data.
Analysts attributed the firmer CFETS index to relatively smaller declines in the yuan than in its peers.
Many investors take 98 as the ceiling for the index and its persistent strength could prompt some central bank action to rein in the yuan as an appreciating index disadvantages China’s exporters, said a trader at a Chinese bank. By midday, the global dollar index stood at 92.869, while the offshore yuan was trading at 6.4926 per dollar.