Yuan fix at 5-month peak, US dollar weakens on soft outlook
China’s yuan mid price fix strengthened on Thursday to its strongest in five months at 6.1137 to the dollar even as traders persisted in selling down the currency for the third day running.
Though the market wants the yuan to weaken, traders are unwilling to bet heavily against the determination of the Peoples Bank of China to support the currency.
“On a fundamental basis the currency should be weakening,” said Michael Every, financial markets head at Rabobank.
“(The PBOC) continue to fix stronger regardless of what the economy is doing,” he said.
The onshore and offshore yuan rates weakened 41 and 43 basis points respectively in early trading Thursday.
In China’s onshore forex market, the yuan can rise or fall by up to 2 percent against the mid price each trading day.
Pressure to weaken the currency comes from lower interest rates and a slowing economy. However, analysts believe the government is worried about capital outflows if the currency weakened further, hence Beijing’s decision to support the yuan.
A worse than expected 0.2 per cent annual growth rate in the first quarter for the US likely increased the likelihood of a delay in a US interest rate increase, and saw the dollar slump against most major currencies overnight. The US dollar continued to push hard against the upper end of the Hong Kong dollar peg band as it traded at 7.75 to the dollar on Thursday morning.
