China’s yuan surged on Tuesday afternoon to the highest level in a week as major state-owned Chinese banks sold dollars to prop up the Chinese currency after eight days of declines, traders said. The onshore spot yuan firmed to 6.8101 per dollar as of 4:30 pm (0830 GMT), gaining 0.46 percent from the previous late session, and strengthening from an open at 6.8387. The People’s Bank of China takes the 0830 GMT level as its closing price, which is taken ito consideration along with the yuan’s trade-weighted basket to determine the next day’s midpoint fixing.
On Tuesday, the PBOC set the midpoint rate at 6.8292 per dollar prior to market open, the weakest since May 31, softer than the previous fix 6.822. Traders attributed the yuan’s gains to dollar sales by major state-owned banks. “Big banks showed up in the past few days offering dollar liquidity as well, but the amount was much less than they sold today,” said a Shanghai-based trader at a Chinese bank.
State-owned banks have sold dollars in the forex market regularly since late last year in what traders believe is part of official efforts to prevent the yuan from weakening too fast. Gains in the onshore spot yuan also lifted its offshore counterpart to 6.8105 per dollar by 4:30 pm (0830 GMT), 0.7 percent firmer than the previous close. Another Shanghai-based trader suspected that the Chinese authorities wanted to stabilise the yuan ahead of President Xi Jinping’s visit to Hong Kong from June 29 to July 1 to commemorate the 20th anniversary of the city’s handover from British colonial rule.
On Tuesday, Chinese Premier Li Keqiang reiterated at the World Economic Forum (WEF) that no restriction would be implemented on foreign firms’ repatriating profits from China. Capital outflows were a big concern for the government last year as it attempted to put the economy back on track and keep the yuan stable without exhausting its foreign exchange reserves. Outflows have eased, and foreign-exchange reserves have expanded the past four months.
The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 94.19, firmer than the previous day’s 93.91. The global dollar index fell to 97.025 from the previous close of 97.426. Offshore one-year non-deliverable forwards contracts (NDFs), considered the best available proxy for forward-looking market expectations of the yuan’s value, traded at 6.9795, 2.15 percent weaker than the midpoint. One-year NDFs are settled against the midpoint, not the spot rate.