The U.S. dollar/yuan pair was trading around 6.597 at 10:10am HK/SIN, compared with 6.6147 at the close of the previous session. The yuan’s climb came after the central bank guided the currency’s midpoint higher before the market opened on Tuesday — the first time it has raised that guidance in two weeks, according to Reuters.
The People’s Bank of China (PBOC) fixed the official midpoint at 6.6273 per dollar, firmer than Monday’s fixing of 6.6493 per dollar.
“The driving force behind the dollar sell-off on Tuesday was the climb higher in the yuan,” said Stephen Innes, APAC head of trading at OANDA.
With the 19th party Congress expected on Oct. 18, China’s central bank was likely attempting to provide “overriding stability” in the market and a better platform to encourage foreign investment into China, he added.
China’s central bank governor Zhou Xiaochuan said in an interview with financial magazine Caijing that the country must press on with a “trinity of reforms” that include free trade and investment, letting the market decide yuan’s value and doing away with capital account controls.
But the latest official data on the country’s foreign exchange reserves hinted at central bank intervention to weaken the yuan, noted Julian Evans-Pritchard, China economist at Capital Economics.
The country’s foreign exchange reserves rose to $3.108 trillion at the end of September, $17 billion higher than the previous month, official data released on Monday showed.
“Our model suggests that while most of the increase was due to valuation effects, the PBOC may have purchased a small amount of (foreign assets),” Evans-Pritchard wrote in a note. “If it turns out that the PBOC was indeed a net buyer of (foreign assets) for the first time since October 2015 last month, this will add to speculation that the PBOC has returned to a policy of resisting renminbi appreciation.”
The Chinese central bank does not provide a breakdown of any assets it may have purchased.
As the country inches closer to the Communist Party Congress which is held once every five years, stability in the world’s second-largest economy has become the utmost priority, analysts noted.
In addition to firming the official midpoint of the yuan, authorities have also been more vocal about assuring the markets that growth is still on track.
Ning Jizhe, head of the National Bureau of Statistics of China, reportedly said the country will have no problem meeting or beating its growth target of around 6.5 percent this year. He also said measures to cool the property market have been effective and will remain in place, Reuters reported.
Better economic prospects and the opening up of China “will certainly attract inflows” into the Asian giant, which could prop up the yuan further, CIBC’s foreign exchange strategist Patrick Bennett wrote in a note on Tuesday.
“Demand and thus appreciation of the yuan should be the least of surprises,” he said.
Source : CNBC