China’s yuan briefly rose to its highest point against the U.S. dollar in more than
four-and-a-half months on Wednesday after the central bank set a much stronger daily fixing for the currency.
But after touching a top of 6.3794 per dollar, its firmest since June 2, the yuan pulled back by midday on what traders said was corporate dollar demand following recent strong gains by the Chinese unit, while the dollar itself remained broadly steady.
Traders said a 100 billion yuan ($15.65 billion) injection of cash into China’s financial system through the central bank’s daily open market operations had also helped to nudge the yuan lower.
“Market sentiment was very unstable yesterday with heavy dollar selling and no clear sign of buying by big banks. But it still remains unclear how things will go from here,” said a trader at a foreign bank.
The yuan breached the key 6.4 per-dollar level on Tuesday to end its domestic trading session at a four-month high, lifted by market expectations that fallout from debt-laden developer China Evergrande Group can be contained and hopes that Sino-U.S. tensions were easing.
On Wednesday, the People’s Bank of China set the yuan’s daily midpoint rate – which is informed by the
previous day’s domestic close – at 6.4069 per dollar, its firmest since June 11.
“The PBOC was largely calm (about) RMB appreciation and we expect the USD strength and rising global yields to drive the RMB back to the 6.4/6.5 range,” Ken Cheung, chief Asian FX strategist at Mizuho Bank said in a note.
The yuan’s rise has been broad, lifting it not just against the dollar but other currencies as well. On Wednesday, China’s trade-weighted CFETS yuan basket index rose to 100.29, its highest since Feb. 3, 2016, according to Reuters calculations.
Spot yuan opened at 6.3898 per dollar and was changing hands at 6.3900 at midday, 79 pips weaker than Tuesday’s late session close. The offshore yuan retreated from Tuesday’s high
point of 6.3685 to trade at 6.384 by midday.
Analysts and traders widely expect the yuan to soften against the U.S. dollar as China’s slowing economy prompts monetary authorities to ease policy.
On Wednesday, data showed that China’s new home prices stalled for the first time since February 2020 in September, hit by tightening credit due to an ongoing crackdown on speculative investment.