China’s yuan slips but supported by firm fixings, pause in easing
SHANGHAI — China’s yuan slipped against a
strengthening dollar on Thursday, but it drew support from
persistently firmer-than-expected official midpoint fixings and
a pause in the central bank’s monetary easing efforts.
The People’s Bank of China (PBOC) partially rolled over
maturing medium-term policy loans while maintaining the interest
rate as expected, with hawkish U.S. Federal Reserve tightening
leaving it limited room to maneuver on monetary policy.
“The PBOC has demonstrated its stance to defend the RMB
exchange rate from breaking above 7 handle shortly and a rate
cut will contradict such objective,” Ken Cheung, chief Asian FX
strategist at Mizuho Bank, said in a note.
The Chinese central bank’s surprise cuts to key interest
rates in August accelerated the yuan’s declines, taking it to
two-year lows with a loss of more than 3% in a month.
Prior to the market opening, the PBOC continued to set the
midpoint rate above market projections, traders said,
in an attempt to curb rapid yuan depreciation during the recent
It fixed the guidance on Thursday at 6.9101 per dollar, 15
pips firmer than the previous fix of 6.9116 and 52 pips stronger
than the Reuters estimate of 6.9153.
“The PBOC continued to rely on daily fix to manage and guide
RMB moves,” analysts at OCBC Bank said in a note.
“Stronger fix could continue to be featured but could only
serve as an attempt to slow the pace of RMB depreciation.”
In the spot market, the onshore yuan opened at
6.9680 per dollar and was changing hands at 6.9666 at midday, 36
pips weaker than the previous late session close.
Several currency traders said they have recently adopted a
rangebound, “buy low, sell high” trading strategy to liquidate
long dollar positions around 6.97 per dollar.
“The strong dollar capped the upside room for the yuan,
while too much weakness (in the Chinese currency) could trigger
state bank actions,” said a trader at a foreign bank.
Investors will shift their attention to August activity
indicators due on Friday to gauge the health of the world’s
In global markets, the dollar stood near recent peaks
as markets increased bets that the Federal Reserve has more work
to do in its aggressive tightening streak to curb inflation.
By midday, the global dollar index rose to 109.714
from the previous close of 109.658, while the offshore yuan
was trading at 6.9743 per dollar.
The yuan market at 0400 GMT:
Item Current Previous Change
PBOC midpoint 6.9101 6.9116 0.02%
Spot yuan 6.9666 6.963 -0.05%
Divergence from 0.82%
Spot change YTD -8.78%
Spot change since 2005 18.80%
Item Current Previous Change
Dollar index 109.714 109.658 0.1
*Divergence of the dollar/yuan exchange rate. Negative number
indicates that spot yuan is trading stronger than the midpoint.
The People’s Bank of China (PBOC) allows the exchange rate to
rise or fall 2 percent from official midpoint rate it sets each
OFFSHORE CNH MARKET
Instrument Current Difference
Offshore spot yuan 6.9743 -0.11%
Offshore 6.8855 0.36%
*Premium for offshore spot over onshore
**Figure reflects difference from PBOC’s official midpoint,
since non-deliverable forwards are settled against the midpoint.
(Reporting by Winni Zhou and Brenda Goh; Editing by Edmund
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