Yuan Rises From Two-Month Low on Bets PBOC Backing Exchange Rate

Updated on
  • Policy makers want stability after earlier declines: analyst
  • Yuan index in longest run of gains since December start

China’s yuan advanced from a two-month low amid speculation the central bank is trying to ease depreciation concerns.

The People’s Bank of China wants to keep the currency stable after declines earlier this week, Bank of East Asia Ltd. foreign-exchange analyst Kenix Lai said after the monetary authority strengthened the onshore yuan’s daily fixing. A rebound in the dollar is complicating matters for the authorities after a period which saw the yuan moving in lockstep with the weakening greenback versus major currencies, helping the nation’s exporters.

The Chinese currency rose 0.14 percent to 6.5097 a dollar as of 5:22 p.m. in Shanghai, according to China Foreign Exchange Trade System prices. It fell to 6.5240 on Tuesday, the weakest since March 10. The offshore yuan traded in Hong Kong was little changed at 6.5374. A gauge of dollar strength is up 1.9 percent so far this month, after posting its worst quarter since 2010.

“The yuan has dropped a lot in the previous few days and now the PBOC probably wants to keep the yuan stable without sharp declines against the dollar, as that would spur capital outflows," said Hong Kong-based Lai. "China’s economy has shown signs of stabilization but it’s not quickly recovering, so the authorities may not want to see sharp gains either. I expect the onshore yuan to weaken to 6.65 by year-end."

Dollar Outlook

The dollar’s slump is over, according to Goldman Sachs Group Inc., which said that the currency is positioning for a rebound. It estimates that the greenback will advance 15 percent during the next two years as U.S. monetary policy normalizes.

A Bloomberg replica of the CFETS RMB Index rose for the sixth straight day, the longest run of gains since the 13-currency gauge was introduced in December. The measure is down 3.8 percent for the year.

“As the dollar has resumed its strength, the central bank is shifting from keeping the yuan steady against the greenback to maintaining stability or strengthening versus its peers,” said Tommy Xie, a Singapore-based economist at Oversea-Chinese Banking Corp.

The offshore yuan’s discount to the rate in Shanghai increased to 0.43 percent, close to the widest since February, spurring concern that the PBOC may intervene to close the gap. The monetary authority probably stepped into the onshore market to support its exchange rate, according to Commonwealth Bank of Australia, while Mizuho Bank Ltd. foreign-exchange strategist Ken Cheung said intervention was unlikely because the "market mood remains largely stable.”

— With assistance by Tian Chen

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