By BLOOMBERG

BEIJING • China’s yuan was stable in the onshore market following last Friday’s surge, after the central bank signalled that it’s taking action to support the currency through its daily fixing.

Starting this month, banks resumed using an adjustment in the daily pricing of the currency against the dollar, known as the counter-cyclical factor, to mitigate the bias toward a weaker yuan, the People’s Bank of China (PBoC) said late last Friday.

The fixing has been consistently stronger than expected recently, according to Bloomberg surveys. China had suspended use of the factor in January.

The announcement adds to signs that China is pushing back against yuan declines, with the central bank this month boosting the cost to short the currency and urging lenders to prevent any “herd behaviour” in the foreign-exchange market.

The yuan’s drop of about 6% against the dollar over the past three months, more than any other Asian currency, raises the risk that the capital outflows seen in 2015-2016 will reappear.

“The move could end the one-way depreciation of the yuan and stabilise the currency in the near term, as the central bank clearly signalled its intention to keep the yuan stronger than the key psychological seven per dollar level,” said Ken Cheung, Hong Kong-based senior Asian currency strategist at Mizuho Bank Ltd.

By explicitly acknowledging the reactivation of the counter-cyclical factor, Chinese authorities are likely to “be more proactive in signalling their yuan guidance”, Goldman Sachs economists led by MK Tang wrote in a note on Saturday.

“If the guidance were not heeded by the market, there might be follow- up policy actions to imprint the guidance on the market.”

The PBoC said last Friday that the factor “plays a positive role in keeping the yuan rate at a reasonable equilibrium level”.

Yesterday, it set a stronger than expected reference rate for the 13th consecutive day. The onshore yuan was little changed at 6.8210 per dollar as of 5:10pm in Shanghai yesterday, after jumping 0.8% last Friday.

Stocks were higher, with the Shanghai Composite Index rising 1.9% and Hong Kong’s Hang Seng Index gaining 2.2%.

“The central bank’s statement to support the yuan has boosted market sentiment, which is the main reason for the rise of the stock market yesterday,” said Kang Chongli, a Beijing- based analyst with Lianxun Securities Co.

Pessimism about the yuan’s value against the greenback lingers, as a trade war between the world’s two biggest economies is primed to escalate after officials failed to make progress in two days of negotiations in Washington.

A new round of tariffs could come as soon as early September, after the countries slapped import taxes on US$50 billion (RM205 billion) of each other’s goods.

The yuan has stoked the ire of US President Donald Trump after a losing streak against the dollar of more than one month.

Earlier this week, Trump rekindled his campaign accusations that Beijing is engaging in currency manipulation, long one of the most sensitive friction points between the two countries.

“Following the end of the USChina trade talks this week, the resumption of the counter-cyclical factor to strengthen the yuan, or prevent further weakness, could be a gesture from the Chinese authorities to the US side,” said Khoon Goh, head of Asia research at Australia & New Zealand Banking Group Ltd in Singapore.