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Yuan

Yuan gains ahead of weekend G20 ministers’ meeting

First day the offshore yuan strengthens above 6.7 per dollar level this week

PUBLISHED : Wednesday, 20 July, 2016, 11:32am
UPDATED : Wednesday, 20 July, 2016, 10:59pm

The Chinese yuan strengthened for a second straight day on Wednesday, amid speculation the Chinese central bank may keep its currency stable ahead of a G20 ministers meeting this weekend.

The offshore yuan in Hong Kong jumped 268 basis points or 0.4 per cent from a day earlier to trade at 6.6837 per US dollar at 5pm. It is the first day the offshore yuan strengthen above the 6.7 per dollar level this week.

The onshore yuan closed at 6.6780 against the US dollar at 4.30pm to extend its two-day rally. It was 151 basis points or 0.23 per cent stronger from a day earlier.

The People’s Bank of China on Wednesday set the yuan reference point against the US dollar at 6.6946, 25 basis points or 0.03 per cent stronger than Tuesday’s fix.

Trading is allowed up to 2 per cent either side of the reference point for the day.

“There may be some intention by the PBoC of keeping the offshore market near or below the 6.70 level ahead of the G20 ministers meeting in Chengdu this weekend,” Stephen Innes, senior trader at Oanda Asia Pacific wrote in a note.

“That should lessen the likelihood of competitive devaluation acquisitions rearing their ugly head at the weekend meetings. The market was certainly caught wrong footed on this one.”

On July 23-24, the finance ministers and central bank governors of the G20 will meet in Chengdu, the capital of southwest province Sichuan, to discuss measures to propel economic development and financial stability in the post-Brexit world.

It is widely expected the yuan will remain under pressure in the near term, notwithstanding a potential meltdown of credit asset bubbles that have been created
Stephen Innes, senior trader at Oanda Asia Pacific

“G20” stands for the world’s major 20 economies including the United States, European Union and China. The Chengdu meeting is the last ministerial-level get-together ahead of the 11th G20 Summit to be held in Hangzhou during September 4-5.

The yuan’s recent rise coincides with a strengthening of the greenback, as the US Dollar Index hit the highest level since March 10 on Tuesday amid a drop in the euro and sterling.

Christy Tan, Asia head of markets strategy and research at National Australia Bank, said it’s unclear whether the PBoC is trying to stay beneath the 6.70 level on the fixing, but recent moves do increase the risk that the PBoC will look to move its currency closer to the US Dollar Index.

“Most likely the convergence will take place during periods of US dollar downside but not on the way up,” Tan said.

However, the short rally is unlikely to change the depreciation trend of the Chinese currency, as the slowing economy continues to weigh on trader sentiment, Innes said.

“It is widely expected the yuan will remain under pressure in the near term, notwithstanding a potential meltdown of credit asset bubbles that have been created,” Innes said.

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