Published: Sat, January 07, 2017
Economy | By Melissa Porter

China strengthens yuan fixing 0.9%, most since 2005

China strengthens yuan fixing 0.9%, most since 2005

In the new basket the weighting of the Dollars and that of all currencies pegged to the USD has fallen from 33 percent to 30.5 percent.

China moved to shore up the faltering yuan currency for a second day on Wednesday, with the central bank setting a stronger-than-expected daily trading midpoint and state banks selling U.S. dollars.

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. This will keep the dollar lower for a little while but we would also not be surprised if speculators are not also aware of today's non-manufacturing ISM number and tomorrow's payrolls and wages announcements. Overnight Hibor for the offshore yuan rose to 38.3 percent on Thursday, up from 17.76 percent on Tuesday and 16.95 percent on Wednesday.

"But the yuan is at least unlikely to have another rapid fall ahead of the Lunar New Year", said a Shanghai-based trader at a foreign bank.

With signs of short-term liquidity stress, the implied overnight deposit rate for the offshore yuan soared as high as 101.694% on Thursday.

Mr Halley said the central bank's intervention has deferred the prospect of the yuan falling to 7 against the U.S. dollar, at least until the greenback itself rebounds or funding normalises.

Zhou Hao, a Singapore-based economist with CommerzBank, attributed the tight yuan liquidity in Hong Kong, high borrowing costs, and a correction of the United States dollar as factors for the strengthening of the yuan offshore.

There is of course another way to read the tea leaves when it comes to the China, its currency and particularly the capital flight that has been and will most likely continue to put pressure on the country's reserves.

It is not clear if Chinese authorities have engineered the spike in yuan borrowing rates in Hong Kong this week.

Traders have meanwhile sharply reined in their yuan-depreciation expectations for 2017. -China relations under the Trump administration. Chinese authorities are keen to deter speculation in the currency and analysts and traders suspect policymakers have sought to prevent it from weakening to the 7-per-dollar level ahead of U.S. President-elect Donald Trump's inauguration on January 20. Businesses and individuals concerned about domestic asset bubbles and the uncertain outlook for China's economy are looking for returns outside the country-including in the US, where the likelihood of higher interest rates makes assets more attractive. It is forecast to fall to 7.00 by end-March and 7.10 by end-June.

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