China’s yuan firmed on Wednesday as some corporates covered their short positions after an unexpected dollar weakening in global markets, traders said.
“Dollar demand has generally been strong despite the yuan’s recent rebound,” said a senior trader at a European bank in Shanghai.
“Some corporates appear to have overbought dollars. With the dollar unexpected to weaken sharply again overnight, some have to cover their yuan short positions.”
The People’s Bank of China (PBOC) set the midpoint rate CNY=SAEC at 6.6195 per dollar prior to market open, firmer than the previous fix of 6.6451.
The spot market CNY=CFXS opened at 6.6250 per dollar and was changing hands at 6.6280 at midday, 19 pips below the previous late session close and 0.13 percent away from the midpoint.
Globally, the dollar struggled near 6-week lows against a basket of currencies on Wednesday due to expectations that the U.S. Federal Reserve will raise interest rates later rather than sooner.
Since the yuan slipped through the psychologically important 6.7/dollar level on July 18, it has rebounded 1.2 percent as the PBOC stepped in to control the pace of its depreciation.
However, with the dollar index starting a new round of weakening in late July, the central bank has reduced its intervention, giving the market a bigger say in the yuan’s value, traders said.
The yuan has depreciated 2.1 percent so far this year as the world’s second-largest economy struggles.
While headline data suggest the economy is slowly stabilizing, it is also becoming more unbalanced with growth more reliant on a steady stream of government spending as private investment cools sharply.
The Thomson Reuters/HKEX Global CNH index .RXYH, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 95.44, firmer than the previous day’s95.37.
The offshore yuan was trading 0.11 percent below the onshore spot at 6.635 per dollar.