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(Bloomberg) — China’s central bank signaled a preference for slower gains in the yuan, setting the daily fixing at a broadly stable level that is much weaker than expected, after the currency climbed to a three-year high.
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The People’s Bank of China fixed the reference rate at 6.7894 on Friday, versus 6.7892 Thursday. The gap between the rate and the average estimate in a Bloomberg survey of analysts and traders was the widest since early March.
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“PBOC sends its strongest signal yet against rapid yuan gains” and policymakers are likely increasingly uncomfortable with the pace of appreciation, Wee Khoon Chong, senior Asia Pacific market strategist at BNY, wrote in a note.
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The offshore yuan was little changed at 6.7446 per dollar on Friday, after rising to 6.7440 overnight, the strongest level since February 2023. The onshore unit was still up 0.1%, extending gains into the third day. Yuan’s rally accelerated on Thursday, as the Federal Reserve’s decision to hold the interest rate unchanged weakened the greenback.
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Month-end flows were skewed toward dollar selling in the onshore yuan market on Friday, and there were dollar bids from major state banks that slowed the pace of yuan appreciation, according to traders, who asked not to be identified speaking on private matters.
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The yuan has strengthened over 3% to outperform all its Asian peers this year, supported by robust exports that have fueled dollar conversions and China’s resilience to energy shocks triggered by the Iran war. While the PBOC has generally guided the fixing stronger this year, officials have repeatedly emphasized that they prefer currency stability and warned against one-way bets on the yuan.
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The market broadly expects the yuan’s resilience to hold well for the rest of the year, and the sentiment is also underpinned by expectations that China’s President Xi Jinping will visit the US and meet with his counterpart Trump in September. In forecasts affirmed in recent weeks, Barclays Plc strategists said they expect the yuan to reach 6.65 per dollar by the end of the year, while LGT Bank AG is targeting the 6.6 level in the next 12 months.
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PBOC could be reluctant to induce more dollar selling at month end, thus stopping short of further strengthening the fixing, but the sustainability of such effort needs to be further confirmed, according to Khoon Goh, head of Asia research at Australia & New Zealand Banking Group.
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“I don’t think they are done with the appreciation trend. We will find out when August rolls around,” he said.
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—With assistance from Ran Li and Julia Zhong.
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(Updates with prices, ANZ comment)
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English (US)