SHANGHAI – China’s yuan rebounded from a 14-year low against US dollar in the previous session. It has now recovered eight days of losses after the central bank warned against speculative trade and placing heavy one-way bets.
On Wednesday, the People’s Bank of China said that stabilising foreign exchange markets is the highest priority and that the yuan’s fundamental stability can be maintained.
Analysts at Goldman Sachs (NYSE.GS) stated in a note that the statement “illustrated PBOC’s further concerns about the rapid depreciation currency… (though the PBOC wouldn’t defend a particular rate of exchange rate, especially since the depreciation has been driven by continued appreciation USD).”
The PBOC established the market’s midpoint rate at 7.1102 dollars prior to opening. This is 5 pips more than the previous fix, which was 7.1107.
Related: China’s onshore yuan falls to its lowest level since the 2008 financial crisis.
Spot market: The onshore yuan opened at $7.1500 per dollar at noon and was trading at 7.1903 by midday. This is 117 pips (0.16%) more than the late session close.
On Wednesday, the yuan fell to 7.2521 dollars per dollar, its lowest level since 2008’s global financial crisis.
The offshore yuan has also recovered from the lowest point on record, which was reached a day earlier. It traded at 7.192 dollars by midday.
According to currency traders, a decline in the dollar index and the PBOC’s verbal warnings helped lift the yuan during morning deals.
A trader at a foreign banking institution stated that the unusually strong tone of the warning discouraged many investors not to test new lows in yuan.
Separately, on Thursday, the Securities Times, a state-owned newspaper, stated in a front page commentary that the yuan will not continue to appreciate rapidly.
Market participants view these comments and statements from the state media as an indication that authorities are becoming more uncomfortable with currency movements.
Analysts believe that the yuan will continue to be under pressure if the Federal Reserve raises interest rates aggressively in order to control high inflation.
Analysts predict that USD/CNY will continue to rise despite Fed hikes.
“Even though we anticipate that the PBOC will continue to pace USD/CNY’s rise, we expect upward pressure on the pair to reach 7.20 by 2023.”
The yuan market at 4:02 GMT
ONSHORE SPOT
Items Current Changes
PBOC Midpoint 7.1102 7.1107 0.01%
Spot yuan 7.1903 7.202 0.16
Divergence starting at 1.13%
midpoint*
Spot change YTD 11.62%
Spot Change since 2005 15.11%
Revaluation
The key indexes
Items Current Changes
Thomson 0.0
Reuters/HKEX
CNH Index
Dollar index 113.262 112.604 0.
*The dollar/yuan exchange rates diverge. A negative number means that the spot yuan trades stronger than its midpoint. The People’s Bank of China allows the exchange rate, which is based on its official midpoint rate each morning, to fluctuate by 2 percent.
CNH MARKET OFFSHORE
Related: China’s new bank loans rose by 1.89 trillion yuan in May, which was much more than expected.
Current Instrument Difference
From onshore
Offshore spot Yuan * 7.192 +0.02%
Offshore 7.0845 0.3%
non-deliverable
Forwards
*Premium for spot offshore over onshore
**Figure shows the difference between PBOC’s official middlepoint and non-deliverable forwards.
