China’s yuan firmed on Monday after the dollar tumbled in global markets on weak U.S. growth data. But the Chinese market still saw robust dollar demand, while major state banks were suspected of selling dollars on behalf of the central bank to help support the yuan, traders said. “Investors still believe the yuan will depreciate by the end of this year, possibly to 6.8/dollar,” said a senior trader at a European bank in Shanghai. He said that “sustained” dollar demand in the market despite the yuan’s recent rebound, while the central bank “was suspected to be offering dollar liquidity to keep the yuan’s value under its control.”
The People’s Bank of China set the midpoint rate at 6.6277 per dollar prior to market open, firmer than the previous fix of 6.6511. The spot market opened at 6.6340 per dollar and was changing hands at 6.6346 at midday, -55 pips away from the previous late session close and 0.10 percent away from the midpoint. Since the yuan slipped to the psychologically important 6.7/dollar level on July 18, it has had a mild rebound of 0.7 percent as the central bank stepped in to control the pace of its depreciation.
The Chinese currency has still depreciated 2.2 percent so far this year, partly because of how the world’s second largest economy is struggling to keep growth rates from falling. In global markets, the dollar on Monday pulled away from lows after it lost 1.3 percent on Friday, hit by disappointing U.S. growth figures while the yen pared some its large gains after the Bank of Japan’s smaller-than-expected stimulus steps. The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 95.55, weaker than the previous day’s 95.85. The offshore yuan was trading -0.05 percent away from the onshore spot at 6.6379 per dollar.