China’s yuan inched up against the dollar Monday, buoyed by a firmer midpoint fixing and after the foreign exchange regulator soothed worries about the Chinese currency’s depreciation.
Prior to market open, the People’s Bank of China (PBOC) set the midpoint rate CNY=SAEC higher for the second day at 6.5626 per dollar, 0.02 percent firmer than the previous fix 6.5636.
The move was an apparent reversal of the midpoint’s recent weakening trend which included the biggest one-day drop in the guidance rate in five months on Jan. 7.
The spot market CNY=CFXS opened at 6.5950 per dollar and was changing hands at 6.5827 at midday, 0.17 percent firmer than the previous close.
Traders reported that there was a bout of dollar sales by some state-owned banks in early trade, pushing the yuan to 6.5755, but the sales eased shortly.
“The spot market was relatively stable now, though the dollar-bid tone still dominated the market,” said a dealer at a foreign bank in Shanghai.
Beijing launched an index on the yuan’s exchange rate weighted against a basket of trade-related currencies last month, a move that will eventually loosen the currency’s link to the greenback and plays down the impact of the yuan’s depreciation against the dollar.
The weekly index dropped below 100 to 99.96 for the first time last Friday since it was launched on Dec. 11, 2015, indicating that the yuan was not only depreciating against the dollar but also to the basket last week.
“Following the wild session in the first week of this year, it appears to us that China would hold back the pace of CNY depreciation,” Zhou Hao, an economist at Commerzbank in Singapore, wrote in a research note.
China’s foreign exchange regulator urged the country’s investors not to be alarmed by foreign institutions “talking down” the yuan, saying the currency remained relatively stable, the official Economic Daily reported on Monday.
It had said on Saturday that it would ramp up risk control efforts, push ahead with regulatory reforms and look to accelerate the development of the country’s foreign exchange market in 2016.
However, dealers believed there would still be room for the yuan to weaken and touch 6.6 per dollar this month, given slowing growth in the world’s second-largest economy.
China will face great difficulty in achieving economic growth above 6.5 percent over the 2016-2020 period, the China Securities Journal quotes a top state adviser as saying.
“Fixing the midpoint firmer in the past two days will not make a significant change to people’s outlook of the yuan, ” said a senior dealer at a Chinese commercial bank in Shanghai.
“Sentiment is hard to be consoled in the short term.”
On Monday, onshore yuan barely moved against the euro EURCNY=CFXS at 7.1874. It weakened 0.8 percent against the Japanese yen JPYCNY=CFXS, to 5.6123 to 100 yen.
The offshore yuan CNH=D3 was trading 1.35 percent weaker than the onshore spot at 6.6727 per dollar.