China's yuan rose sharply against the dollar on Friday, with traders citing large transactions by state-owned banks on behalf of the central bank to support the currency. "There were clear signs that the central bank was continuing intervening in spot trading to support the yuan," said a dealer at a major European bank in Shanghai.
"However, unlike yesterday, there appeared no more central bank intervention in the derivative markets today, allowing the forwards prices to stabilise." Spot market trading in the yuan opened at 6.3930 per dollar and it was changing hands at 6.3909 by late morning, strengthening 0.23 percent from the previous close.
In addition to the trading intervention, the People's Bank of China (PBOC) also set the midpoint rate at 6.3986 per dollar prior to the market open, 0.15 percent firmer than the previous fix of 6.4085. Onshore one-year yuan/dollar deliverable forwards were quoted at 6.5160, firming only slightly from Thursday's close of 6.5208. As a sign of such expectations. The offshore yuan was trading 0.96 percent weaker than the onshore spot at 6.453 per dollar on Friday morning.
In a rare move, the PBOC also intervened in yuan derivatives markets on Thursday to push down the implied discount of the yuan's value in the future against its current value to reduce market expectations of further yuan depreciation, traders said earlier.