HONG KONG: China’s central bank moved to shore up the yuan with a stronger-than-expected fixing and a planned bond sale in Hong Kong.
The People’s Bank of China set its reference rate at 6.8930 per dollar Tuesday, 0.2% higher than traders’ and analysts’ average forecast of 6.9089. The strong bias in the daily fix – which restricts the onshore yuan’s moves by 2% on either side is the largest since Bloomberg started releasing the survey estimates since August 2017. The central bank also said it plans to sell bills in Hong Kong later this month, a move that will drain liquidity and support the currency.
The yuan started to weaken in early May as a trade war with the US escalated and the economy slowed. Bears got a new catalyst to build short bets on Friday, when the central bank’s chief Yi Gang hinted that China doesn’t have a red line for the yuan and it may further ease monetary policy. The exchange rate slid to the weakest this year Monday, sparking debate on whether or when China will allow it to break the key 7 level for the first time since the financial crisis.
“Forget about the psychological 7 level,” said Khoon Goh, head of research at Australia & New Zealand Banking Group Ltd., adding that the fixing will stay stronger than 6.9 before the Group of 20 summit. “Today’s fixing sends a clear message that the authorities are still intent on keeping the yuan stable, and have no desire to see it weaken further.”
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The onshore yuan advanced for the first time in five days, rising 0.16% to 6.9195 per dollar as of 10:14 a.m. in Shanghai. The offshore yuan gained 0.18%