Yuan Fixing Takes Center Stage, Again

  • Central bank sets rate weaker than expected third day in a row
  • Onshore yuan fell 0.7% last two days, most in emerging Asia

PBOC Weakens Yuan Fixing

China’s yuan fixing is back in focus, with a run of surprises moving the market in recent days.

The central bank set its reference rate -- which limits onshore moves to 2 percent on either side -- at a weaker than expected level for the third day in a row Wednesday. The rates, and the removal of a reserve requirement rule on the trading of foreign-exchange forwards, are fueling bets that authorities want to limit gains after the onshore yuan surged more than 4 percent against the dollar in the three months through Sept. 7.

QuickTake The People's Currency

The People’s Bank of China set Wednesday’s fixing at 6.5382 per dollar, compared with the average forecast of 6.5355 in a Bloomberg survey of 19 traders and analysts. The authorities have had greater opportunity to sway the fixing either way since May, with the introduction of a “counter-cyclical factor” to the rate-setting mechanism.

“The PBOC still wants a relatively stable yuan,” said Nathan Chow, a Hong Kong-based economist at DBS Group Holdings Ltd. “Even if it strengthens or weakens, the pace needs to be controlled, and in an orderly and gradual manner. This will be easier for exporters to manage risks. The market expectation is that there should be no big changes or surprises before the party congress next month.”

The yuan’s rally began to falter on Friday as the removal of the reserve rule made it less expensive to bet on yuan declines. The monetary authority weakened Tuesday’s fixing by the most in eight months following an overnight surge in a gauge of the greenback, pushing the onshore spot rate lower.

To read more on how the yuan’s surge is affecting exporters, click here

The onshore yuan plunged 0.7 percent against the dollar in the last two days, the most in Asia after Japan’s yen. The currency rose 0.1 percent to 6.5298 per dollar as of 4:48 p.m. in Shanghai on Wednesday, while the offshore rate strengthened 0.1 percent to 6.5289 in Hong Kong. The Bloomberg Dollar Spot Index fell 0.2 percent.

“The fixings this week indicate the PBOC’s clear intention to slow down the pace of appreciation,” said Tommy Xie, an economist at Oversea-Chinese Banking Corp. in Singapore.

— With assistance by Robin Ganguly, Helen Sun, Ran Li, and Tian Chen

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