The Chinese yuan has broken through the 7-per-dollar mark for the first time in 16 months.
This milestone comes as investors respond to a series of measures aimed at bolstering China’s economy.
The offshore yuan climbed to 6.9951 per dollar on Wednesday, extending its recovery from July’s yearly low.
China unveiled a package of supportive policy measures on Tuesday amid concerns about its growth target.
These measures included plans for a stock market stabilization fund to boost investor confidence.
Chinese Yuan Surges to 16-Month High Against Dollar. (Photo Internet reproduction)
The yuan’s appreciation this quarter aligns with expectations of further easing by the Federal Reserve. The Fed’s recent half-point rate cut has kept the dollar near its lowest level since January.
This weakness in the dollar could prompt Chinese exporters to repatriate some of their substantial dollar reserves.
Capital flows into China have already shown improvement in August, with local firms reporting net forex sales.
The People’s Bank of China (PBOC) has maintained a neutral stance on the yuan, as indicated by Wednesday’s reference rate.
The central bank set the fixing at 7.0202 per dollar, close to market expectations. This approach suggests that authorities are not opposing the recent yuan appreciation.
However, the PBOC remains vigilant against unilateral market expectations and potential overheating risks.
Governor Pan Gongsheng reiterated that the yuan’s exchange rate has solid foundations for stability. The central bank has various tools at its disposal to slow the yuan’s appreciation if needed.
Chinese Yuan Surges to 16-Month High Against Dollar
State-owned banks have been actively managing the currency by bidding for dollars against the yuan.
This intervention has helped limit the yuan’s advance beyond certain thresholds. Meanwhile, exporters have been selling dollars amid increased inquiries for dollar purchases.
The onshore yuan came close to breaking the 7-per-dollar mark, reaching 7.0012 on Wednesday.
The PBOC also cut the interest rate on its one-year policy loans while withdrawing net liquidity.
Analysts suggest that sustained gains beyond 7 per dollar may depend on significant improvements in China’s economic data.
As the yuan’s strength continues to evolve, market participants will closely monitor the PBOC’s actions.
The central bank’s readiness to cool the yuan’s appreciation trend, if necessary, underscores the delicate balance between supporting growth and maintaining currency stability.
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