China’s central bank is trying to steal a march on the US Fed, by boosting the yuan
Bank’s moves are aimed at crushing speculators who have a bearish outlook on the yuan, by sending out a clear signal the country will not tolerate a weakening currency
The Chinese central bank is perfectly sensible in making preparatory moves well ahead of any likely rise in US interest rates in the middle of this month, analysts agree, by strengthening the yuan in an effort to prevent any further rise in capital outflow, that could affect the country’s economic mission of deleveraging.
But analysts still report the country is seeing sustained levels of capital leaving its shores.
Over the past ten days, the yuan has appreciated 1.1 per cent against the US dollar in the onshore market, and 1.5 per cent in the offshore market, where the People’s Bank of China (PBOC) has also engineered a spike in short-term interbank lending rate, a rare move in such a tightly managed currency market.
On Monday, onshore yuan closed at 6.8014 against the greenback, strengthened by 70 pips from 6.8084 from the opening price.
It set the reference rate at 6.7935 yuan per US dollar, stronger by 135 basis points, or 0.2 per cent stronger than Friday. Traders are allowed to trade 2 per cent either side of the reference point.
On May 26 the Chinese central bank announced it would tweak its mechanism for fixing the daily yuan rate by adding a “counter-cyclical adjustment factor”.
