SHANGHAI, Aug 31 ― China's yuan bounced and rose past the key threshold of 6.9 per dollar today, as a persistently firmer-than-expected official guidance rate discouraged investors from aggressively pressuring the local currency lower.
Prior to market opening, the People's Bank of China (PBOC) set the midpoint rate at 6.8906 per dollar, 104 pips or 0.15 per cent weaker than the previous fix of 6.8802, which was the weakest since August 26, 2020.
The fixing, however, was 200 pips stronger than Reuters' estimate of 6.9106 today. It has been firmer than market projections and Reuters estimates for six days in a row, according to traders and market participants.
Traders and analysts speculated that the firmer-than-expected midpoint fixings over the past week could be part of an official attempt to rein in recent rapid yuan losses.
“It indicates China's central bank strives to keep the yuan exchange rate basically stable and curb one-way speculation on the yuan depreciation ahead of the ruling party's 20th national congress that will kick off on October 16,” said Qi Gao, FX strategist for Asia at Scotiabank.
In the spot market, the onshore yuan opened at 6.9090 per dollar, rose past the psychologically important 6.9 per dollar level and changed hands at 6.8940 by midday, 161 pips firmer than the previous late session close.
The “obvious” policy signal through the midpoint fixing prevented the spot yuan from falling too far, too fast, said a trader at a Chinese bank.
“Investors (will) also watch out for any further policy actions to smooth (the) RMB move if the fixings and verbal intervention fail to do so,” said Frances Cheung, rates strategist at OCBC Bank.
Multiple traders also said corporate dollar buying ebbed in morning deals on the last trading day of the month, alleviating downside pressure on the yuan.
China's yuan has lost about 2.2 per cent to the dollar so far this month and looked set for the biggest monthly drop since April, dragged lower by a surging dollar, domestic economic slowdown and China's apparent monetary easing bias to support the economy.
Earlier in the session, official data showed that China's factory activity extended declines in August as new Covid infections, the worst heatwaves in decades and an embattled property sector weighed on production, suggesting the economy will struggle to sustain momentum.
“We do not see any genuine growth driver that can lift GDP meaningfully in Q3 and Q4 ... We now expect China's full-year GDP growth at 3.0 per cent in 2022,” said Raymond Yeung, chief economist for Greater China at ANZ, downgrading its full-year growth forecast from 4.0 per cent previously.
“Our forecast is consistent with our long-standing view that China's potential growth will continue to slip till 2025.” ― Reuters
