Yuan rises after regulator says China has no intention to devalue
Both onshore and offshore yuan edged up on Monday after Pan Gongsheng, head of the State Administration of Foreign Exchange, wrote in state magazine Qiu Shi that China has no intention of devaluing its currency to boost its competitiveness.
“It is important to note that China has no intention of enhancing its competitiveness through currency devaluation, it neither has the will or the need for it.” Pan said. “By providing foreign exchange liquidity to the market, the central bank prevents excessive currency moves and “herding effects”.
The comments underscores China’s determination of prioritising economic, financial and social stability ahead of the leadership shuffle at the 19th CPC National Congress that is likely to be held in November.
Onshore yuan rose 0.05 per cent to 6.8005 per dollar in Shanghai while the offshore yuan edged up 0.02 per cent to 6.8013 in Hong Kong.
However the People’s Bank of China weakened its daily reference rate 0.07 per cent on Monday to 6.7964 on the back of the dollar’s rebound on Friday, due to better-than-expected US payrolls data. Domestic traders are only allowed to buy or sell the currency within 2 per cent of its daily yuan reference rate.
United States’ Labor Department data showed that the nation added 222,000 jobs in June, fuelling worries that the Fed is on track for another US rate increase at the end of the year.
Despite Monday’s gain, the yuan has remained sharply weaker than the daily mid point for the past six sessions, reflecting lingering market worries on yuan depreciation. This means an upcoming dollar sell-off in the coming sessions that is of similar magnitude to those seen in late June and late May, Qi Gao, FX strategist at Scotiabank said in a research note.
“The CFETS RMB Index has edged up in the past sessions, affirming the central bank’s intention to crack down on one-way speculation over the yuan depreciation,” Qi said.
In late-June, traders speculated that bullish remarks from Mario Draghi about the euro zone’s performance, which sent the euro rocketing higher against the dollar overnight, was seized by the PBOC as an opportunity to intervene in the currency spot markets and cause a sell-off in dollars to support the yuan.
In late-May, the central bank tweaked its formula for calculating daily yuan reference rates and was said to have also engineered a spike in yuan appreciation to ward off speculative outflow pressure.