Yuan extends 4-day bull run after PBOC raises fix to 7-month high

The potential launch of the northbound Bond Connect may withdraw offshore yuan liquidity, analysts say

PUBLISHED : Friday, 30 June, 2017, 10:46am
UPDATED : Friday, 30 June, 2017, 10:46am

The Chinese yuan firmed Friday morning, set to extend its strong run to a fourth session, after the People’s Bank of China strengthened the currency’s daily fix to the highest level in more than seven months.

In the spot market in Shanghai, the US dollar traded at 6.7679 yuan, down 0.3 per cent, or 191 basis points, from 6.787 late Thursday.

The onshore yuan has strengthened since Tuesday, up a combined 1.1 per cent so far.

The offshore yuan also looks likely to log a four-day winning streak. In Hong Kong, the US dollar bought 6.7741 yuan, down 0.3 per cent, or 194 basis points, compared with 6.7935 late Thursday.

Earlier on Friday, the People’s Bank of China guided the yuan sharply higher, setting its mid-point rate at 6.7744 per US dollar, the strongest level since early November. It was stronger by 196 basis points from the previous fix.

The PBOC has raised the yuan’s fixing three days in a row by a combined 548 basis points.

Analysts expected the yuan to continue rising against the US dollar in the coming month.

“The potential launch of northbound only Bond Connect would withdraw offshore yuan liquidity,” said Ken Cheung, an analyst with Mizuho Bank.

Markets expect Beijing to launch the Bond Connect shortly after July 1, the 20th anniversary of Hong Kong’s handover to Chinese sovereignty by Britain.

The northbound mechanism of the Bond Connect, which is expected to come first, will allow overseas investors to access China’s onshore yuan debt market through Hong Kong.

Additionally, the PBOC seems “determined” to defend the yuan and the offshore yuan liquidity squeeze could re-emerge if the yuan weakens below the 6.8 level, Cheung said.