(July 10): The yuan advanced after China’s central bank signalled its comfort with the currency’s strength by setting the daily reference rate below 6.80 per dollar for the first time since 2023.
The offshore yuan gained as much as 0.3% to 6.7785 per dollar, its biggest jump in nearly a month. That’s after the People’s Bank of China (PBOC) set the so-called fixing for the yuan at 6.7989 per dollar. The fixing limits the onshore yuan’s move by 2% on either side.
The 6.80 level is viewed by some market participants as an important reference point for the yuan’s fixing. A level stronger than this threshold suggests that policymakers are comfortable with the currency’s rising momentum. The yuan gains also come alongside other Asian currencies as the dollar broadly weakened.
“Seems like the PBOC is comfortable with allowing the yuan to strengthen further against the dollar,” according to Fiona Lim, senior FX strategist, Malayan Banking Bhd (KL:MAYBANK).
“The PBOC is easing up on its control over the yuan given that yuan appreciation pace has slowed,” she said.
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The yuan is the best performer in Asia so far this year, gaining 3% versus the dollar. The currency’s strength has boosted the attractiveness of Chinese assets, furthering Beijing’s push to internationalize the yuan and attract capital inflows.
The PBOC’s support for the currency is coming at a time when investors are betting that the yuan may be entering a phase of consolidation after its rally. JPMorgan Asset Management has pared its long yuan positions against the dollar while T Rowe Price said the yuan looks “expensive” against a basket of China’s major trading partners’ currencies.
Reflecting that caution, a Bloomberg replica of China Foreign Exchange Trade System RMB Index Tracker based on yuan fixings is set for its first weekly drop since May.
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Eddie Cheung, senior emerging markets strategist, Credit Agricole CIB, said that markets probably see Friday’s fixing as a green light for the slow grind higher in the yuan to continue.
However, the decline in the yuan trade-weighted index suggests that the PBOC isn’t giving a “pure strengthening signal”.
The onshore yuan rose 0.2% to around 6.78 per dollar. A Bloomberg survey estimated the yuan fixing at 6.7938.
Uploaded by Felyx Teoh
