China’s yuan rose against the US dollar on Thursday following a sharp rebound in the offshore yuan overnight as China worked to stem capital flows and to stabilise the currency ahead of US President-elect Donald Trump’s inauguration and the Chinese New Year later this month.
Trump had threatened during the election campaign to slap high import tariffs on Chinese goods and label Beijing a currency manipulator.
The People’s Bank of China set the midpoint rate at 6.9307 per dollar prior to market open, firmer than the previous fix 6.9526.
The spot market opened at 6.9280 per dollar and was changing hands at 6.9240 at midday, -66 pips stronger than the previous late session close and -0.10 per cent stronger than the midpoint.
The spot rate is currently allowed to trade with a range 2 per cent above or below the official fixing on any given day.
“The strength of the onshore yuan today is mainly due to the weakness of global dollar index, and has also been affected by the movement in offshore yuan market,” said a trader at a big Chinese bank in Beijing.
“Though the yuan still faces depreciation pressure, it will likely consolidate around current levels before the Chinese New Year later this month,” the trader said.
The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 96.57, firmer than the previous day’s 96.47.
The global dollar index fell to 102.21 from the previous close of 102.7.
“Some traders were liquidating their positions at the market open to prevent further losses after a much firmed midpoint was set by the central bank,” said a Shanghai-based trader at a foreign bank.
The offshore yuan was trading 0.66 per cent stronger than the onshore spot at 6.8786 per dollar.
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 7.18, -3.47 percent weaker than the midpoint.
One-year NDFs are settled against the midpoint, not the spot rate.