China’s yuan firmed on Wednesday, with investors cautious about possible central bank intervention whenever the currency neared the psychologically-important 6.7 per dollar level.
While a resurgent dollar has pushed the yuan lower in recent sessions, Chinese authorities are reluctant to see it breach the 6.7 to the dollar mark again. When it dipped below that level in mid-July, state-owned banks aggressively sold dollars, a move traders believed was initiated by the central bank.
“Shorts received a big blow in July when the central bank intervened to maintain the yuan’s stability around 6.7,” said a senior trader at a Chinese commercial bank in Shanghai. “So whenever the yuan weakened beyond 6.68 this week, corporate dollar sales emerged,” he said. “No one wants to fight against the central bank.”
The People’s Bank of China set the midpoint rate at 6.6908 per dollar prior to market open, weaker than the previous fix of 6.6812. The spot market opened at 6.6835 per dollar and was changing hands at 6.6780 at midday, 40 pips lower than the previous close.
The global dollar index fell to 95.977 from the previous close of 96.054. It strengthened 0.5 percent overnight, and theoretically should have weakened the Chinese currency on Wednesday. The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 95.07, firmer than the previous day’s 94.95.
The offshore yuan was trading 0.19 percent weaker than the onshore spot at 6.6904 per dollar.