SHANGHAI: China’s yuan inched higher against the dollar on Thursday, as the central bank’s latest move to prop up the equity market buoyed investor sentiment and offset broad greenback strength.
China’s central bank said earlier in the day that it would start accepting applications from financial institutions to join a newly created funding scheme, initially worth 500 billion yuan, to aid the capital market.
The announcement came ahead of the long-awaited finance ministry press conference on Saturday to detail plans on fiscal stimulus.
“We expect RMB gains on policy stimulus to be gradual given a still fragile economic outlook, and high uncertainty with regards to external trade and tariffs,” said Chang Wei Liang, FX & credit strategist at DBS, noting the recent market swings between anticipation and disappointment over China’s fiscal support.
As of 0326 GMT, the onshore yuan was 0.22% higher at 7.0642 to the dollar, while its offshore counterpart traded at 7.07 yuan per dollar.
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 7.0742 per dollar, 8 pips weaker than a Reuters’ estimate of 7.0734.
China’s yuan gains against dollar
Currency traders said the yuan movements and market sentiment have been greatly affected by Chinese equity market performance, while capital flows also weighed on Hong Kong dollar’s cash conditions.
The overnight Hong Kong dollar HIBOR, which some market participants use as a barometer to gauge the strength of foreign capital flowing into Chinese assets in the financial hub, has been elevated.
It was fixed at 4.60893% on Thursday, up about 20 basis points from a day earlier.
China stocks rebounded in morning deals, with Hong Kong’s benchmark Hang Seng Index bouncing more than 4%.
Separately, traders said they will also pay close attention to US inflation data due later in the day, as markets grow more confident about a patient approach from the Federal Reserve to further monetary easing following robust jobs data and the release of Fed minutes from its latest meeting.