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China's yuan hits 3-1/2-year high on heavy holiday demand, PBOC guidance

beijingwalker

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China's yuan hits 3-1/2-year high on heavy holiday demand, PBOC guidance

Reuters
January 24, 202212:37 PM GMT+8
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SHANGHAI, Jan 24 (Reuters) - China's yuan advanced to a more than 3-1/2-year high against the dollar on Monday, guided by a much firmer central bank fixing and heavy corporate demand ahead of the Lunar New Year holiday.

Investors also anxiously await the Federal Reserve's policy meeting later this week, at which the U.S. central bank could reveal some comments on its plans to remove monetary stimulus this year.

The Fed is expected to raise rates as early as March, with several more increases seen over the year.


Prior to market opening, the People's Bank of China (PBOC) set the midpoint at 6.3411 yuan per dollar, 81 pips, or 0.13%, stronger than the previous fix. It was the firmest since May 14, 2018.

In the spot market, the onshore yuan opened at 6.3359 per dollar and strengthened to a high of 6.3304, the loftiest level since May 14, 2018. By midday, it was changing hands at 6.3334, 62 pips firmer than the previous late session close.


Traders and market analysts said corporate yuan demand is typically heavier just before the week-long Lunar New Year holiday, which starts on Jan. 31 this year, as companies make payments such as employee bonuses.

"The yuan will be affected by the monetary policy divergence between China and the United States and the seasonal FX settlement this week," analysts at CICC said in a note.

The Chinese investment bank expects the yuan to fluctuate around 6.34 per dollar this week.


While the Fed is expected to tighten, its Chinese counterpart would probably ease further before the broad economy bottoms out following a slew of reductions to key rates.

"Given China's policymakers have changed the mindset to meet market expectation, we think China will not hesitate to roll out more easing measures if sentiment sours or economic recovery loses momentum," said Tommy Xie, head of Greater China research at OCBC Bank.

Widening monetary divergence between the world's two largest economies pressured the forwards market, with one-year dollar/yuan swaps falling to a low of 1,115 points on Monday morning, the lowest level since July 2020.

By midday, the global dollar index (.DXY) rose to 95.723 from the previous close of 95.642, while the offshore yuan was trading at 6.3345 per dollar.

 
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beijingwalker

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China's nominal GDP will be adjusted greatly upward again based on this new exchange rate, last year US dollars just falls off the cliff , has been in a free fall.
 

beijingwalker

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China's yuan ends at highest in nearly 4 years, despite some state bank actions

Reuters
January 26, 2022


SHANGHAI, Jan 26 (Reuters) - China's yuan finished Wednesday's domestic trading session at the highest level in nearly four years against the dollar and a 6-1/2-year peak versus its trading basket, while markets continued to gauge authorities' attitude towards recent gains.

The onshore spot yuan ended its domestic trading session at 6.3219 per dollar, 38 pips firmer than the previous late night close, marking the strongest finish since April 25, 2018.

Its offshore counterpart also strengthened and traded at 6.3274 per dollar around 0830 GMT.

Prior to market opening, the People's Bank of China (PBOC) set the midpoint at 6.3246 yuan per dollar, 172 pips, or 0.27%, firmer than the previous fix of 6.3418. It was the firmest since April 25, 2018.

The much stronger official guidance rate drove the trade-weighted CFETS basket index (.CFSCNYI) up to 103.5, the highest since Aug. 11, 2015.

Pre-holiday corporate demand helped push the yuan higher, even as some major state-owned banks were seen buying dollars on Wednesday afternoon, several traders said, a move that dampened market enthusiasm to test new highs in the yuan.

State banks could trade on behalf of the central bank in China's FX market, but they could also trade on their own behalf.

"The market is dancing on a knife-edge," said a trader at a Chinese bank, noting market participants have been carefully testing the authorities' patience with a strengthening yuan.

The spot yuan has gained more than 0.5% against the dollar and more than 1% against a basket of trading partners so far this year.

The PBOC introduced policy measures to curb yuan gains last year when the currency crossed key thresholds.

If the yuan remains firm after the holiday period, Khoon Goh, head of Asia research at ANZ, said the central bank could use the daily fix to tug the yuan back, and official financial newspapers could run commentaries to show the market that the yuan's strength was becoming undesirable.

The week-long Lunar New Year holiday starts on Jan. 31.

Separately, markets will pay close attention to the outcome of Federal Reserve's two-day policy meeting due later in the session, which could hold clues to the trajectory of its planned policy tightening.

 

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