China sets yuan fix at strongest bias on record to lift currency

HONG KONG – China extended its currency defense by setting its reference rate for the yuan with the strongest bias on record.

The People’s Bank of China set the fix at 6.9116 per US dollar, 598 pips stronger than the average estimate in a Bloomberg survey of analysts and traders. The strong bias exceeded the previous record of 454 pips seen last Wednesday and comes on top of a reduction in foreign-currency reserve requirements for banks, which was also aimed at supporting the currency.

The central bank’s renewed pushback comes as the offshore yuan once again weakened toward 7, its lowest since 2020. That’s because US inflation data fueled bets on jumbo hikes by the Federal Reserve, which would set China’s monetary policy further apart from the US and drive outflows.

“There appears to be more of a near term bias to continue to use the fixing to anchor spot,” said Eddie Cheung senior emerging markets strategist at Credit Agricole CIB. “The policy intention right now is to ensure market stability, he said, adding that this may still not be enough to turn around dollar-yuan.

The renewed dollar strength stemming from hawkish Fed bets also dragged other Asian currencies like the South Korean won and the yen lower while also prompting further verbal intervention from Japan. The yuan is also under pressure as Covid-led lockdowns in major cities and turmoil in the nation’s property sector weigh on the economy. Traders are watching if the central bank would add liquidity in the banking system this week as medium-term loans come due, after an unexpected rate cut in August spurred the yuan’s decline.

China’s Securities Journal reported citing analysts that there’s no basis for long-term yuan depreciation as China’s economy stabilizes, the trade surplus stays high and authorities guide expectations.

The onshore yuan was little changed at 6.9712 per dollar while the offshore unit edged up 0.1 per cent to 6.9783 as of 9.42 am in Hong Kong. BLOOMBERG