Yuan gains carried China's onshore currency to its strongest level against the dollar since June 2022 on Thursday, as broad dollar weakness outweighed central bank efforts to restrain the pace of appreciation. The currency touched 6.6740 per dollar.
Key Takeaways
- The onshore yuan reached 6.6740 per dollar before trading at 6.6749 as of 0238 GMT.
- Export-related currency demand supported the yuan as investors awaited major central bank meetings next week.
Table of Contents
- Yuan gains outpace the central bank's guidance
- Quiet trading accompanies the currency's advance
- US rate expectations remain in focus
- Conclusion
Yuan gains outpace the central bank's guidance
The People's Bank of China set Thursday's midpoint at 6.7195 per dollar before trading opened. The onshore currency is permitted to trade within 2% on either side of the daily fixing.
Maybank analysts similarly said the fixing showed resistance to the speed of the dollar's decline against the yuan. They added that the limited distance between the spot rate and midpoint suggested authorities were allowing the currency's direction to continue.
Quiet trading accompanies the currency's advance
The offshore yuan stood at 6.6744 per dollar, up about 0.01% during Asian trading. Onshore activity was subdued despite the multiyear high: spot rates moved through a range of roughly 20 pips, while turnover declined to around $10.6 billion.
Currency traders cited strong exports and sustained foreign exchange settlement as support for the yuan this year. China Merchants Bank analysts said continued conversion of export earnings into yuan could keep the currency stable or support further appreciation even if the dollar index remained resilient.
US rate expectations remain in focus
The broader dollar weakness came as investors reassessed the US interest rate outlook amid renewed concern about oil-driven inflation. Meanwhile, the China-US yield differential remained close to its widest level on record, keeping attention on US monetary policy.
The Federal Reserve, Bank of Japan and European Central Bank were widely expected to leave rates unchanged at meetings next week while retaining a hawkish stance. Traders assigned only a small chance to a Fed increase at the upcoming meeting, with the next hike expected in December.
Conclusion
The yuan's advance combined export-related support with a weaker dollar, while the PBOC's fixing indicated a preference for a slower rise rather than a reversal.
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