Yuan surges in suspected PBOC action to curb depreciation expectations

PBOC seen driving the yuan to near the 6.8 level as June comes to an end

PUBLISHED : Thursday, 29 June, 2017, 11:36am
UPDATED : Thursday, 29 June, 2017, 11:36am

The Chinese yuan surged Thursday morning against the US dollar, on track for a three-day advance, as analysts suspect Beijing has intervened to prop up the currency in order to smooth out the launch of the Bond Connect programme.

In the onshore market in Shanghai, the US dollar was trading at 6.7793 yuan as of 11.25am, down 205 basis points, or 0.3 per cent, from 6.7998 late Wednesday.

The yuan has strengthened sharply against the greenback since Tuesday, up a combined 1 per cent as of Thursday morning.

In the offshore market in Hong Kong, the yuan was also set to gain for a third day. The US dollar declined 165 basis points, or 0.2 per cent, to 6.7871 yuan by 11.25am, compared with 6.8036 late Wednesday.

The People’s Bank of China strengthened the yuan’s daily fixing rate to 6.794 per US dollar, up 113 basis points from Wednesday’s 6.8053. Wednesday’s fixing was up 239 basis points from the previous session, the biggest increase in a month.

“It appears that the PBOC would manage to drive the RMB exchange rate closing at near 6.80 at June-end,” said Ken Cheung, an analyst with Mizuho Bank.

Recent “suspected intervention” suggests the PBOC is stepping up its action to contain depreciation expectations by squeezing the yuan liquidity in the offshore market, he added.

“Reversing RMB depreciation expectation would encourage foreign investors to purchase RMB-denominated assets and in turn smooth out the launch of Bond Connect by boosting initial onshore bond purchase through the programme.”

In other FX trading, the ICE US Dollar Index, a gauge of the greenback’s strength against six currency rivals, dropped 0.1 per cent to 95.876.

Against the Japanese yen, the US currency weakened slightly to ¥112.29 from ¥112.3 late Wednesday.

The euro firmed against the US dollar to US$1.1404, up 0.2 per cent, and sterling also rose 0.2 per cent to US$1.2952 from the prior session.