China’s yuan steady as official fix set at 1-month high

SHANGHAI, Aug 21 (Reuters) –China’s yuan held broadly steady against the U.S. dollar on Wednesday, after touching a two-week high earlier in the session, as the official guidance was set at its strongest level in nearly a month.

As the dollar has weakened, China’s official daily fixes are now closer to market forecasts, while the spot yuan also has converged towards the fix.

Prior to the market opening, the People’s Bank of China (PBOC) set the midpoint rate CNY=PBOC, around which the yuan is allowed to trade in a 2% band, at 7.1307 per dollar, its strongest since July 26.

The fix is only 4 pips weaker than a Reuters’ estimate, the smallest deviation since June 2023, suggesting the pricing mechanism has normalised as the dollar is losing steam.

The PBOC has been tightening the fix by setting it stronger than Reuters estimates since late June last year as the yuan was under pressure due to a stuttering economy. A moribund property sector, anaemic consumption and falling bond yields have all undermined the yuan.

Maybank analysts continue to see downside for the yuan on a trade-weighted basis as the PBOC is no longer under pressure to defend the currency against the dollar when the Federal Reserve pivots towards rate cuts.

Against a basket of trading partners’ currencies .CFSCNYI the yuan fell to 97.65, the lowest level since Dec. 2023, according to Reuters calculations from official data.

The spot yuan CNY=CFXS opened at 7.1350 per dollar and was last trading largely steady, just 17 pips lower than the previous late session close and 0.01% weaker than the midpoint.

The yuan touched its highest levels since Aug 5 in early trade before reversing some gains.

The dollar extended its sell-off against major currencies on the back of lower yields overnight as market players await the release of preliminary benchmark revisions to U.S. employment data due later on Wednesday and the Federal Reserve Chair Jerome Powell’s speech at the Jackson Hole symposium in Wyoming on Friday. USREVP=ECI

“The market appears to be positioning for a signal from Fed Chair Powell on Friday of an imminent Fed rate cut,” said Alvin Tan, head of Asia FX strategy at RBC Capital Markets.

The offshore yuan traded at 7.1292 yuan per dollar CNH=, down about 0.16% in Asian trade.

The dollar’s six-currency index =USD was 0.069% higher at 101.45.

Key onshore vs offshore levels:

• Overnight dollar/yuan swap onshore -7.70 pips vs. offshore -7.70

• Three-month SHIBOR SHIBOR= 1.8 % vs. 3-month CNH HIBOR 2.1 %

LEVELS AT 04:32 GMT GMT

Reporting by Shanghai Newsroom
Editing by Shri Navaratnam