SHANGHAI, May 17: China’s yuan strengthened on Friday after the central bank set an unexpectedly strong official midpoint, following on from an overnight slip in the dollar, to signal its intention to let the Chinese currency appreciate further in the near term.
Spot yuan was trading at 6.1400 against the dollar at midday, up an unusual 0.15 percent from 6.1492 at Thursday’s close.
The People’s Bank of China set the yuan’s midpoint at 6.1997, up 0.16 percent from 6.2096 on Thursday. Traders said it was rare for the central bank to let its base rate, from which the yuan can rise or fall 1 percent in a day, rise about 100 pips from the previous day.
Driven by strong capital inflows into China, the PBOC has guided the yuan to a slew of record highs since early April, but the rally paused earlier this week after the dollar broke through key resistance.
In latest data that betrayed the trend of fund inflows, Chinese banks bought more foreign currency than they sold for clients in April, with net purchases of $34.3 billion in over-the-counter transactions, figures from the State Administration of Foreign Exchange (SAFE) showed on Friday.
‘By setting a quite strong midpoint today, the PBOC is signalling that the yuan’s recent appreciation trend has remained intact,’ said a trader at a Chinese commercial bank in Shanghai.
Several traders now raised their forecast for the yuan to appreciate to 6.0 against the dollar in coming months unless there is a reverse of capital inflows, compared with 6.2 they had expected until early April.
The Bank for International Settlement (BIS) index for the yuan’s real effective exchange rate (REER) – the currency’s value against a trade-weighted basket after adjustments based on inflation – appreciated 0.88 percent to 115.24 in April from 114.23 in March, the seventh consecutive month of appreciation, BIS data published late on Thursday showed.
The onshore spot yuan market at a glance:
Item Current Previous Change
PBOC midpoint 6.1997 6.2096 +0.16%
Spot yuan 6.1400 6.1492 +0.15%
Divergence from midpoint* -0.96%
Spot change ytd +1.47%
Spot change since 2005 revaluation +34.80%
*Divergence of the dollar/yuan exchange rate. Negative number indicates that spot yuan is trading stronger than the midpoint.
(AGENCIES)
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