Yuan Gains as PBOC Seen Preventing Drops Before Fed Rate Meeting

Updated on
  • President Xi Jinping's U.S. visit bolsters stability bets
  • Economic data released Sunday add to stimulus expectations

The yuan gained the most in a week on speculation China’s central bank will prevent more weakness before a Federal Reserve interest-rate decision and President Xi Jinping’s visit to the U.S.

There’s a 28 percent chance the Fed will raise borrowing costs at the end of its Sept. 16-17 meeting, according to interest-rate futures, down from 38 percent at the end of August. Xi will visit the U.S. later this month, the Xinhua News Agency reported. Chinese industrial production for August trailed analysts’ estimates and fixed-asset investment in the first eight months of the year rose at the slowest pace since 2000, according to figures released Sunday.

"The PBOC will keep the yuan stable as it creates a smooth atmosphere before Xi’s visit and ahead of the Fed’s rate decision," said Kenix Lai, a foreign-exchange analyst at Bank of East Asia Ltd. "The data over the weekend signaled China’s economic fundamentals were weak, but the economy may pick up as the nation rolls out stimulus measures."

The yuan in Shanghai, where moves are restricted to 2 percent on either side of a central bank fixing, strengthened 0.11 percent to close at 6.3679 a dollar, according to China Foreign Exchange Trade System prices. That was the biggest advance since Sept. 2. The currency has lost 2.6 percent this quarter as the People’s Bank of China moved to a more market-determined method of setting the daily reference rate, which was raised 0.02 percent to 6.3709 on Monday.

China will stabilize the yuan at current levels with the aim of reducing depreciation pressures that are priced into the offshore market, Tim Condon, Singapore-based head of Asia research at ING Groep NV, wrote in a research note Monday. ING strengthened its year-end forecast for the onshore yuan to 6.4 a dollar from 6.55, he wrote.

The yuan’s exchange rate will be more market-determined in the medium to long term, PBOC Chief Economist Ma Jun said in a seminar in Seoul on Monday. There’s no need to weaken the currency to support China’s exports, he said.

Yuan positions at the PBOC and financial institutions fell the most on record in August, according to central bank data. The drops add to evidence that the monetary authority intervened to support the currency as a devaluation spurred capital outflows. The country’s foreign-exchange reserves tumbled by a record $93.9 billion last month, official data show.

In Hong Kong, where the currency trades freely, the yuan gained 0.14 percent to 6.4016 a dollar as of 6:02 p.m. local time, according to data compiled by Bloomberg.

— With assistance by Tian Chen

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