Yuan Gains After PBOC Sets Strongest Fixing Rate Since December

  • Currency fixing is consistent, no change in stance, Lam says
  • Yuan slides against trade-weighted basket of rival currencies

The yuan gained in Shanghai after China’s central bank boosted the Chinese currency’s reference rate to the strongest level this year and stocks rallied as trading resumed after a public holiday.

The People’s Bank of China raised the daily fixing by 0.04 percent to 6.4565 per dollar, the highest level since Dec. 15. The PBOC’s fixing was within a range of expectations, according to Australia & New Zealand Banking Group Ltd. and Agricultural Bank of China International Securities Ltd. The yuan appreciated 0.06 percent to 6.4755 per dollar as of 4:30 p.m. based on China Foreign Exchange Trade System prices.

“The key point is that the renminbi is still on the stronger side,” said Banny Lam, Hong Kong-based co-head of research at Agricultural Bank of China International Securities. “I see consistency in PBOC’s fixing policy which is helping to keep the yuan stable basically. I don’t think there’s a change in the stance. Usually, you may see some strange things happening before or after the holiday because there are some other transactions at banks going on during the period. And this may have affected the fixing today too, but not so much.”

The Shanghai Composite Index rallied 1.9 percent, its biggest gain since March 30. Consumer and technology companies paced the advance. Mainland shares climbed amid speculation the government will take steps to boost investor interest in equities after the nation’s cabinet urged "healthy" development of the stock market, according to Huaxi Securities Co.

Manufacturing Data

The yuan slipped 0.06 percent in Hong Kong after rising as much as 0.08 percent earlier. The Chinese currency erased gains after a private gauge of manufacturing slipped in April. The manufacturing purchasing managers index from Caixin Media and Markit Economics fell to 49.4, missing economists’ estimates for 49.8. The official factory gauge released on Sunday showed improving conditions for the first time in eight months.

A Bloomberg replica of the CFETS RMB Index, which measures the yuan against 13 exchange rates, dropped 0.6 percent, the most since Feb. 4. The Bloomberg Dollar Index, which tracks the greenback against 10 major currencies, headed for the lowest close since May as expectations for higher interest rates in the U.S. receded. The replica measures the yuan’s relative performance against its trading partners.

“It is a very comfortable situation for the PBOC, as the dollar’s weakness helps keep the yuan stable to stronger against the greenback, which helps to ease outflow pressures,” said Khoon Goh, Singapore-based strategist at at ANZ. “At the same time, the yuan is weakening against the other basket currencies which is helping the renminbi exchange rate index decline, thereby improving China’s relative competitiveness.”

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