Yuan steady on central bank currency policy and ahead of Fed rates decision

The yuan was steady on Monday ahead of an interest rate decision by the US Fed and amid expectations that the People’s Bank of China will keep the currency stable for the remainder of the year.

On Monday, the central bank set the yuan’s daily reference rate little changed at 6.7948 per dollar after lowering the rate in the previous two days.

“The PBOC fixing appears to be normalising in the last week where it has stopped purposely strengthening the yuan,” Sean Yokota, a strategist at SEB, wrote in a research note, adding that offshore yuan liquidity has also fallen back to normal levels.

Onshore yuan was little changed at 6.7972 per dollar on Monday while the currency in Hong Kong’s offshore market dropped 0.06 per cent to 6.7878, falling for the fourth straight day in its longest losing streak since April 10.

The central bank last month tweaked its formula for calculating daily yuan reference rates. It was said to have also engineered a spike in offshore yuan rates to signal markets that it will not tolerate an excessively weak yuan in an effort to ward off capital outflows.

Reflecting normalised conditions from previous tight liquidity conditions, the overnight CNH Hibor rate, a gauge of yuan funding costs between banks in Hong Kong, was at 1.88 per cent on Monday compared to 1.81 per cent on Friday and 21.1 per cent in early-June.