China sets yuan fixing stronger than expected


HONG KONG • China’s central bank moved to shore up the yuan with a stronger than expected fixing and a planned bond sale in Hong Kong.

The People’s Bank of China (PBoC) set its reference rate at 6.8930 per dollar yesterday, 0.2% higher than traders and analysts’ average forecast of 6.9089. The strong bias in the daily fix — which restricts the onshore yuan’s moves by 2% on either side — is the largest since Bloomberg started releasing the survey estimates in August 2017. The central bank also said it plans to sell bills in Hong Kong later this month, a move that will drain liquidity and support the currency.

The yuan started to weaken in early May as a trade war with the US escalated and the economy slowed.

Bears got a new catalyst to build short bets last Friday, when the central bank’s chief Yi Gang hinted that China doesn’t have a red line for the yuan and it may further ease monetary policy.

The exchange rate slid to the weakest this year on Monday, sparking debate on whether or when China will allow it to break the key seven level for the first time since the financial crisis.

“Forget about the psychological seven level,” said Khoon Goh, head of research at Australia & New Zealand Banking Group Ltd, adding that the fixing will stay stronger than 6.9 before the Group of 20 (G-20) summit.

“Yesterday’s fixing sends a clear message that the authorities are still intent on keeping the yuan stable, and have no desire to see it weaken further.”

US President Donald Trump and his Chinese counterpart Xi Jinping may meet at the G-20 summit in Osaka this month. Traders will be closely watching the gathering to gauge the outlook for trade negotiations and the yuan.

“We expect the Chinese authorities to continue defend seven in the foreseeable future,” said Becky Liu, head of China macro strategy at Standard Chartered plc, adding that a negative outcome at the G-20 summit wouldn’t warrant a change in this stance. “The PBoC may step up the size and frequency of bill issuance should the yuan come under greater depreciation pressures.”

The onshore yuan was heading for its first gain in five days, rising 0.24% to 6.9137 per dollar as of 4:51pm in Shanghai yesterday. The offshore yuan gained 0.21%. — Bloomberg