Yuan Rises for a Second Day as Fixing Signals Government Support

  • Central bank is looking to smoothen declines, Mizuho says
  • China has taken series of measures to tighten outflow curbs

China’s yuan rose for a second day after an unexpectedly strong central bank fixing spurred speculation that policy makers are supporting the currency.

The exchange rate climbed 0.07 percent to 6.8785 per dollar as of 4:53 p.m., while the offshore rate dropped 0.2 percent. The onshore currency earlier surged as much as 0.3 percent, the most since August on a closing basis, before paring gains in the afternoon. The People’s Bank of China strengthened its daily reference rate to 6.8575, stronger than the average of predictions from Mizuho Bank Ltd., Scotiabank and Bank of Tokyo-Mitsubishi UFJ.

“The yuan is gaining due to the fixing," said Ken Cheung, a currency strategist at Mizuho Bank in Hong Kong. "The PBOC’s support reflects its stance to smooth out yuan depreciation. Capital outflow pressures remain intact, but too rapid of a fund exodus will spark panic and jeopardize financial stability."

Donald Trump’s surprise election victory has complicated matters for Chinese policy makers, with his threats to brand the nation a currency manipulator putting renewed pressure on the yuan and increasing the cost of any possible intervention. The authorities crafted a series of measures last week to make it harder to move money out of the country amid the twin risks of an imminent Federal Reserve interest-rate increase and an annual resetting of a foreign-exchange conversion quota for Chinese citizens.

Yuan investors -- already nervous about Trump’s focus on China’s currency policy -- were in for a shock Tuesday when ICAP Plc data showed the currency had slipped to 7.5 per dollar. The exchange rates were inaccurate and the yuan was quoted at that level due to incorrect third party feed, the company said in an e-mailed statement. The PBOC didn’t immediately reply to a faxed request for comment.

— With assistance by Tian Chen

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