Yuan Advances to Four-Month High Against Trade-Weighted Basket

  • PBOC now working to slow depreciation against dollar: ANZ
  • Stabilizing economy also seen supporting China’s currency

China’s yuan climbed to a four-month high against a trade-weighted index amid speculation the central bank wants to prevent excessive depreciation versus the dollar.

A Bloomberg replica of the CFETS RMB Index, which measures the yuan against 13 exchange rates, gained 0.3 percent on Wednesday to 94.95, the highest level since Aug. 1. The yuan was Asia’s second best-performing currency in November, excluding the Hong Kong dollar which is pegged to the greenback. The People’s Bank of China weakened the daily reference rate by 0.14 percent to 6.8958 per dollar on Thursday, about 100 pips stronger than Australia & New Zealand Banking Group Ltd.’s prediction of 6.9060.

Such a wide gap between the official fixing and the forecasts of analysts has often occurred when the Bloomberg Dollar Spot Index gains more than 0.5 percent overnight, spurring speculation the central bank wants to slow depreciation versus the greenback. The yuan also found support from data showing the economy is stabilizing. The official manufacturing purchasing managers’ index rose to 51.7 in November, higher than the median estimate of economists.

“The increase in the CFETS index reflects the ‘capping effect,’ as the PBOC tries to control the pace of yuan depreciation against the dollar, leading to a relatively better performance versus other currencies,” said Irene Cheung, foreign-exchange strategist at Australia & New Zealand Banking Group Ltd. “On the other hand, the stabilizing Chinese economy is also lending support to the currency.”

PBOC Deputy Governor Yi Gang said on Nov. 27 the Chinese currency’s depreciation versus the dollar was largely driven by the strength of the greenback and the market should refer to its performance against a basket of currencies as the economy maintains stable growth. The country’s authorities have also stepped up efforts to curb outflows after the yuan declined to its weakest level versus the dollar in eight years.

“Unswerving yuan bears” are just being stubborn, as the economy isn’t so bad, Guan Tao, a former official with the State Administration of Foreign Exchange, wrote on Thursday in a front-page commentary in the Financial News, a publication managed by the PBOC.

“There are signs that the Chinese authorities are shifting the focus to the yuan index, given the dollar’s strength recently,” said Tommy Xie, an economist at Oversea-Chinese Banking Corp. “The CFETS index will become the market focus as the new anchor.”

The onshore yuan fell 0.13 percent to 6.8940 per dollar at 4:39 p.m., after touching an eight-year low of 6.9270 on Nov. 24. The currency traded in Hong Kong’s offshore market rose 0.17 percent to 6.9046.

— With assistance by Helen Sun

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