China’s yuan was marginally firmer against the dollar on Friday, with the central bank apparently intervening in trading via state banks to control the pace of the currency’s depreciation.
State-owned banks are instructed by the authorities to sell dollars from time to time, traders say.
The yuan had eased over 10 straight sessions against the dollar through Thursday, the longest weakening streak on record.
The People’s Bank of China appears set to let the yuan depreciate to 6.5 per dollar before the year-end, traders said, but may not want it to fall too fast to spark any market panic.
“Even though the PBOC has fixed a string of weak midpoints to guide the yuan lower of late, state-owned banks are offering dollar liquidity at different rates to help the central bank control the pace of depreciation,’’ said a trader at a Chinese commercial bank in Shanghai.
The market has long suspected that Beijing has internal yuan movement targets, and investors now believe the limit for the year-end is around 6.5 per dollar, traders said.
The PBOC set the midpoint rate at 6.4814 prior to market open, the guidance rate’s weakest level since June 2011 and 0.09 per cent weaker than Thursday’s fix of 6.4757.
The spot market opened at 6.4870 per dollar and was changing hands at 6.4828 at midday, 0.01 per cent stronger than the previous close, after it hit another 4-1/2-year low in early trade.
Offshore yuan was trading 1.21 per cent weaker than the onshore spot at 6.562 per dollar.
The yuan’s recent downtrend was seen triggered by a series of weaker daily fixings as the PBOC guided the currency lower in the run-up to and after the US Federal Reserve raised interest rates for the first time in nearly a decade.
During the 10 days, the yuan lost a combined 1.35 per cent and if it closes at its midday level on Friday, it would have lost 0.4 per cent this week.
While permitting the yuan to depreciate over time, the central bank has played down the impact. It launched an index on the yuan’s exchange rate weighted against a basket of trade-related currencies a week ago, a move that will eventually loosen the currency’s link to the greenback.
On Friday, onshore yuan was trading against the euro at 7.0287, 0.3 percent firmer than the previous close. It firmed 0.2 per cent against the Japanese yen at 5.2892 to 100 yen.