Yuan Gains as Regulator Voices Support, Denies Massive Outflows

Updated on
  • Pressure for yuan to weaken has basically ended: SAFE official
  • Banks sold net $127 billion of foriegn currency for clients

The yuan rose to a one-week high as China’s foreign-exchange regulator said depreciation pressure has almost disappeared and the dollar weakened before the Federal Reserve decides on a possible interest-rate increase.

Pressure for the yuan to weaken has basically ended and the exchange rate will remain generally stable, Wang Yungui, an official at the State Administration of Foreign Exchange, said Thursday at a briefing in Beijing. The nation has stepped up monitoring of the currency market and there are no massive capital outflows from China, he said. The Bloomberg Dollar Spot Index dropped to a three-week low before the Fed announces the outcome of a policy meeting on Thursday in Washington. There is a a 32 percent chance of an interest-rate increase, based on futures data compiled by Bloomberg.

"The overnight regional trend is dollar softness against the Asian currencies, and the onshore and offshore yuan are moving in line with the region," said Fiona Lim, a senior currency strategist at Malayan Banking Bhd. in Singapore. "The administrative measures could ease some capital outflows in the short run. But the pressure will likely continue until the economy sees sustained recovery."

The yuan gained 0.08 percent to 6.3660 a dollar in Shanghai, China Foreign Exchange Trade System prices show. It earlier advanced to 6.3647, the strongest since Sept. 11. At least two major Chinese lenders were seen selling the greenback to prop up the yuan at 6.37 after banks’ foreign exchange sales figures were released, according to two traders who asked not to be identified. The currency rose 0.06 percent within 10 minutes of the market close.
 
Chinese banks sold 807 billion yuan ($127 billion) more foreign-exchange than they bought for clients in August, compared with net sales of 174.3 billion yuan in July, according to official data Thursday.

A surge in capital outflows was spurred by an Aug. 11 devaluation that triggered the currency’s steepest slide in two decades. The People’s Bank of China said this month it will impose a 20 percent reserve requirement on financial institutions’ sales of currency forwards, a move that makes it costlier to speculate on the yuan.

The central bank raised its reference rate for the yuan by 0.07 percent to 6.3670 a dollar Thursday. The onshore spot rate is allowed to diverge from the fixing by a maximum 2 percent. The offshore exchange rate in Hong Kong, which isn’t constrained, erased an earlier gain. It dropped 0.06 percent to 6.4094 as of 6:08 p.m. local time, according to data compiled by Bloomberg.

China’s holdings of U.S. Treasuries fell in July by $30.4 billion, the most since December 2013, to $1.24 trillion, according to Treasury Department data released Wednesday in Washington. Some $130-$150 billion of capital left China last month, JPMorgan Chase & Co. chief China economist Zhu Haibin estimated.

— With assistance by Tian Chen

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