China’s Yuan Surges to Six-Week High Against Dollar on Catch-Up Rally

(CTN News) – China’s yuan rallied to a six-week high versus the dollar on Monday, the first trading day following the lengthy Labor Day weekend, as the central bank set a much stronger midpoint fixing to monitor offshore moves.

While mainland Chinese markets were closed for three days last week, the offshore yuan rose on the back of the dollar’s broad decline after data showed a cooling US jobs market, Federal Reserve Chair Jerome Powell confirmed the central bank’s easing bias and suspected Japanese government interventions pushed the yen higher.

The offshore yuan closed at 7.2185 per dollar, up more than 1% from the previous week.

“Japan’s intervention should have a larger impact on the yuan as an additional source of stability in the region, which eases the pressure on the CNY trade weighted index (TWI), in the near term,” Goldman Sachs analysts wrote in a note.

Before the market opening, the People’s Bank of China (PBOC) established the midpoint rate, around which the yuan can trade in a 2% band, at 7.0994 per dollar, 69 pips higher than the previous fix of 7.1063 on April 30.

Monday’s guidance adjustment was the strongest since April 15.

However, the central bank continued its months-long pattern of setting interest rates higher than market expectations, which traders widely interpreted as an attempt to stabilize the currency.

It was 1,133 pips more than Reuters’ estimate of 7.2127.

Monday’s midpoint lowered the yuan’s value versus its major trading partners, as measured by the CFETS index, to 100.02, the lowest level since April 11, according to Reuters calculations based on official data. However, the CFETS index is still up 2.67% this year.

The onshore yuan opened at 7.2009 per dollar in the spot market, its highest level since March 25. Around midday, it traded at 7.2142, 108 pips higher than the previous late session finish on April 30.

Separately, dealers and analysts noted that recent increases in Hong Kong shares had boosted the currency.

“The ongoing bull market in Hong Kong stocks has provided positive sentiment support for the renminbi,” said Tommy Xie, head of Greater China research at OCBC Bank.

Hong Kong’s benchmark Hang Seng Index has gained more than 4% thus far in May, following its best month since January 2023 in April. By lunchtime, the global dollar index had risen to 105.093 from its closing of 105.03.